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U.S. Federal Estate & Inheritance Tax and State Filing Requirement

October 10, 2013

In the U.S., an individual’s estate, beyond a certain limit ($5,250,000 for 2013) is subject to federal taxes on his/her estate. Some state also impose an estate tax. Many taxpayers take the necessary measures to minimize estate taxes, but rarely prepare for an inheritance tax; often neglecting it from their estate planning. That being said, if it is a significant estate to be transferred, the individual should consider planning for inheritance tax. AG Tax has prepared a brief summary on State Inheritance Tax, which could be useful to high net-worth taxpayers.

U.S. Inheritance Tax

U.S. inheritance tax is a tax on each heir’s right to receive the property transferred. It is a tax levied in certain states on the assets inherited by a person after the federal and state estates taxes have been applied to the respective estate. It is a state-only tax as the federal government does not impose an inheritance tax.

Who Needs to Pay an Inheritance Tax?

Depending on the relationship, the inheritor may need to pay taxes on the value of the inherited asset(s). The less closely an individual is related, the higher the inheritance tax rate.

Spouses, registered domestic partners, or civil union partners are exempt from inheritance tax in all states. However, charitable beneficiaries and children may be subject to lower tax rates or exempt from paying taxes depending on the state inheritance tax laws.

States that Impose an Inheritance Tax

• Iowa

• Kentucky

• Nebraska

• Pennsylvania

• Maryland and New Jersey are the two states which impose both estate tax and inheritance tax.

• Indiana has signed legislation to phase out the inheritance taxes in nine years starting January 1, 2013. No inheritance tax will be due for deaths on or after January 1, 2022.

Even if an inheritor does not reside in the above states, he/she may be subject to taxes if the benefactor resided in any of the above mentioned states.

State Inheritance Tax Return

The executor of the estate, usually the Power of Attorney or estate lawyer, needs to file a state inheritance tax return for the total estate regardless of the number of beneficiaries. All inheritance taxes have to be cleared before the estate can be closed.

Since the federal estate tax exemption limit is quite high, most estates are exempt from taxation. However the same does not apply for the state level taxes, which can have much lower exemption limits. This can make most transferred assets potentially liable to state estate and inheritance taxes.

It is advisable that individuals with significant transferrable assets (estate) should consult their estate attorneys regarding state estate and inheritance taxes taking into consideration the domicile state of the beneficiary(ies) and benefactor in order to have a proper estate plan in place.

AG Tax LLP Can Help

If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.

Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.

We can assist with:

  • Canadian Personal and corporate tax returns
  • Cross Border Taxation and Business Planning
  • U.S. Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  • 416-238-5920 (Greater Toronto Area, ON)
  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)


Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.

ABOUTAylett Grant Tax, LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1

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