When a person inherits any estate from his parents after the death of his parents, then that estate inherited by the person could be subjected to some estate and inheritance taxes depending upon the state the person resides in or the state in which the estate is located. So then, have you ever wondered how much of your parent’s estate you can inherit tax-free?
These taxes are levied on the estate depending upon the state and federal tax laws of that particular state and the value of the estate’s total assets.
Many estates are exempt from these taxes because they’re tiny and do not pass the threshold of 12.06 million USD as of 2022. However, it means that a decedent’s estate must be worth over 12.06 million USD for them to be taxed.
As per an estate planning lawyer, how much can you inherit from your parent tax-free?
Every state has its way of taxation and its own set of rules to tax an estate. Let us understand these various taxes and know how much children can inherit from their parents without paying taxes.
Estate taxes inherit from parents tax-free as per estate planning lawyer
An estate tax includes both state and federal estate taxes. This tax is assessed according to the asset’s fair market value and not on what the decedent paid for it.
Any appreciation in the cost of the estate will be taxed accordingly. However, anything that has been left for the spouse in the estate by the decedent is not subject to estate taxes up to an amount decided by the unknown marital deduction.
Federal estate tax
The IRS taxes anything over the 12.06 million USD threshold. In addition, a yearly federal estate tax return must be filed to pay the relevant estate tax.
State Estate taxes
Some states have an estate tax that may vary from 10 to 20%, tax on estates over the threshold value set up by that particular state.
Inheritance taxes
An inheritance tax is imposed on the person who receives the assets. This tax is paid by the person inheriting the property, not the estate itself. Some states use this tax, and the value of this tax depends upon the value of assets. Therefore, your relationship with the decedent and the state inheritance tax rules and rates.
Gift taxes
When someone transfers any money or property to another person without getting something in return, if that is of equal value, then the IRS imposes a Gift tax on those assets that you have gifted.
The amount of tax usually depends on the value of the money and asset, which is over the exemption set up by the IRS, which is about 16k for every person in 2022.
As per the estate planning lawyer, how much can you inherit from your parent tax-free?
This question can be answered simply by looking at the value of exemptions given by the IRS.
When inheriting a gift from your parents, you can avoid taxes up to a value of 16000 USD for each parent. That means a total of 32000 USD worth of contributions can be received annually with taxes. Not only that, your parents get a lifetime gift tax exclusion of 12.06 million per person.
The parent must fill out some extra paperwork to give the children up to 24.12 million USD lifetime gift.
Another way the parents can gift some estate to children without getting taxed is by investing in a 529 plan. This is to fund education and use the gift tax exclusion provided by it.
With this plan, the parents can make five times the gift tax exclusion value of 16 annually. That means 80K and 160K if filled jointly. This lets them pay a lump sum, which was to be paid over five years. This is a complex plan and should only be done with the help of an estate lawyer and financial advisor.
The estate you get is worth 12.06 million USD without state or federal taxes. You can also use various techniques to help you inherit the estate from your parents with no or meager estate taxes.
The estate planning lawyer can include these techniques in your estate plan. These include setting up various trusts and naming your children as beneficiaries in your life insurance policy.
Conclusion
Here, you will know how an estate had taxed and how you can inherit from your parents without paying taxes.
