First, estate tax and inheritance tax are not the same thing, even though you’ll find many experts that use the terms interchangeably.
The executor pays the remaining debts from money or property in the estate. Any funeral or legal expenses are also paid. The federal government taxes whatever remains, if it’s a large estate. Much like income taxes, the rate varies with the value of the estate. A few states also have an estate tax.
In a nutshell, all the bills are paid using proceeds from the estate. What remains is subject to a federal tax if the amount is larger than the current exemptions, and possibly, a state tax.
The heirs then pay inheritance taxes after receiving their inheritances. This tax is a state-level tax. It’s not just the home and the funds in the bank account that are subject to inheritance tax. It’s just about everything:
Most estates fall well under the exemption limit. In addition, many of those above the limit can be organized in a way to bring them under the limit. If you’ve been worrying about the government taking a bite out of your estate, you’re probably in the clear.
The average person doesn’t have to worry about federal estate taxes, and most states don’t tax the estate or the heirs. Large estates, however, are well-served by knowledgeable and aggressive estate planning. Certainly, this area requires expertise. If your family has a large estate, an estate attorney can save you a lot of money.
Mr. Abraham is an experienced attorney and founding member of the Law Firm of Abraham & Bauer. The Towson, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
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