Austin Probate Lawyers

Estate Taxes, Inheritance Taxes – What’s the Difference?

When speaking of estate planning, many people use the terms “estate tax,” “inheritance tax,” and the ever-popular “death tax” interchangeably. While it is easy to get things mixed up, the truth is that inheritance tax and estate tax are entirely different animals. For anyone dealing with estate planning, or anyone who is named as a beneficiary in a will, understanding the difference is an important aspect of respecting the wishes of the deceased.

The Estate Tax

The estate tax is a tax levied by the federal government on estates which exceed a certain worth. This tax is paid by a representative of the estate and operates independently of the estate’s beneficiaries. Currently, the federal estate tax applies to estates of more than $2 million, a limit expected to be raised to $3.5 million in 2009. Some states have their own estate taxes as well.

The Inheritance Tax

Inheritance taxes are typically levied by state governments. They differ from the estate tax in that inheritance taxes are paid by the beneficiaries of an estate. In other words, the beneficiaries must pay a tax in order to have the benefit of receiving an inheritance. This may be implemented as a certain percentage of what the beneficiary inherits, after exemptions. State inheritance taxes are independent of the estate tax, and may be applied even in cases where the estate tax does not.

Before making any decisions regarding the distribution of your assets or the proper way to execute a will, consult an Austin probate lawyer from Slater & Kennon for sound legal advice. Call them at 512-472-2431.