facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Receiving an Inheritance? Be Prepared for These Tax Implications Thumbnail

Receiving an Inheritance? Be Prepared for These Tax Implications

Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer

Dealing with the loss of a loved one is never easy, and the added stress of navigating inheritance tax regulations can make the situation even more overwhelming. Whether you're a first-time beneficiary or have gone through the process before, staying informed about the latest tax laws and the various wealth management and financial planning tools available to you is essential to ensure you retain as much generational wealth as possible, and do so within a smooth and stress-free experience.  

If you could use some information and tips on this topic, download our free guide, “Smart Strategies for Maximizing Generational Wealth: A Step-by-Step Guide to Leaving and Inheriting Money While Reducing Taxes and Stress” at bit.ly/maximize-generational-wealth

Here, we'll share a quick break down of the key aspects of inheritance tax that every beneficiary should know. 

1. Federal vs. State Taxes 

It's crucial to understand the difference between federal and state inheritance taxes. Six states - Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania - impose a local inheritance tax. Even if you don't live in one of these states, you may still be subject to inheritance tax if the deceased owner of the bequeathed property resided in one of them. 

Some beneficiaries might be exempt from state inheritance tax depending on their relationship to the deceased. States categorize beneficiaries into three classes for exemptions: Class A (immediate relations), Class B (more distant relations), and Class C (even more distant relations or unrelated individuals). Research your relationship status to determine if you qualify for additional tax exemptions in your state. 

2. Maximum Payout 

As of 2024, beneficiaries can receive up to $13.6 million exempted through an estate without incurring federal estate tax. However, this exemption amount can vary based on the beneficiary's relationship to the deceased. Keep in mind that if the inheritance goes through an estate, it may take several years for the assets to be fully distributed. 

3. Exemption Transfers  

Married couples have a unique opportunity when it comes to inheritance tax exemptions. If you are receiving an inheritance from your spouse, you may also be eligible to receive any unused tax exemptions. Your spouse can elect to pass their exemptions to you by filing an estate tax return, which is a proactive step couples can take to minimize future tax implications. 

read more below

image of Weiss, Hale & Zahansky Strategic Wealth Advisors Fearless Flyer e-newsletter

View previous campaigns.

get started on living well 

Subscribe to the Fearless Flyer

Get the financial tips and insights you need to fearlessly pursue your goals, plus access to subscriber-only benefits like our Tax Resource Center and more.

* indicates required

4. Deductibles 

The amount of inheritance tax owed depends on the collective value of the inherited assets. However, beneficiaries can take advantage of various deductions to reduce their tax liability. Form 706 from the IRS allows for deductions related to funeral expenses, debts owed by the decedent, mortgages and liens on inherited property, charitable gifts made by the decedent during their lifetime, and bequests to the surviving spouse. Keeping track of any expenses that may qualify for deductions can help minimize the taxes owed on inherited property. 

5. Capital Gains Tax 

Even after paying inheritance tax, beneficiaries may face additional taxes if the inherited assets increase in value over time. If you sell inherited assets for a profit, you could be subject to capital gains tax, which is generally based on the amount of profit realized from the sale. Assets like a stock portfolio that appreciates in value or is sold at a higher price than its value at the time of inheritance could impact your capital gains tax liability, depending on your state's laws. 

Navigating inheritance tax complexities can be challenging, especially during an already difficult time. By understanding the nuances of federal and state regulations, maximizing exemptions and deductions, and being aware of potential future tax implications, beneficiaries can minimize their tax liability and ensure a smoother inheritance process.  

Remember to consult with legal, tax, and wealth management professionals for personalized guidance based on your individual situation. At WHZ, we help clients to both plan their estates, and to prepare to receive an inheritance, helping to ensure the continued growth and passing on of generational wealth.  

We are so proud to play this important role for our clients, like Michael Saitas

“When my uncle passed away he left a complex estate to my brothers and me, so we reached out to Weiss, Hale & Zahansky for help in figuring out the best way to handle the inheritance,” Michael has said. “We were all amazed at how organized, courteous, and communicative they were. The moment I walked in there and met them, I was very comfortable and knew it was going to be a good experience, and now I’m working with them for my own retirement savings as well. They’ve been excellent guides to direct me, make suggestions, and give me the information I need versus having to do it all myself.”  

Learn more about how we can help you and your family on our website at whzwealth.com, or call us at (860) 928-2341 for a complimentary consultation. 

The statement above was provided 2/12/24 by Michael Saltas, who is a client. This statement may not be representative of the experience of others and is not a guarantee of future performance or success. For additional reviews, search us wherever local businesses are reviewed.

Authored by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com. 

You & Your Money Podcast

Tune in for market updates and financial tips to help you Plan Well, Invest Well and Live Well.

Listen & Subscribe

WHZ on YouTube

Quick Tip videos designed to empower you to reach your financial life goals.

Watch & Subscribe

More News & Resources

Loading Posts...

Read More