State Inheritance Tax Can Nip Your Heirs

Inheritance taxes are imposed by 5 states on the right of a person to receive an inheritance from a resident of their state. New Jersey, Kentucky, Maryland, Nebraska and Pennsylvania impose inheritance taxes. Example: A New Jersey woman wanted to leave $75,000 to each of her four siblings in her estate plan. She didn’t realize that the gift would trigger thousands of dollars in inheritance taxes for her beneficiaries. The tax could be $15,000+ for each heir. That is a big bite. Getting an online form or boilerplate estate plan won’t avoid this haircut on your heirs. How can you deal with the inheritance tax? Gift the money before you die. But watch out that gifts close in time to death (3 years for some states) may still be taxed. Purchase a life insurance policy that names the heir as beneficiary. “Gross up” bequests so that your estate is paying their tax and the intended heir gets the net amount you want. Place the assets affected by inheritance taxes into a simple irrevocable trust more than 3 years before death. That can give you tax or economic benefits and possibly avoid the inheritance tax on your passing.