Legal Definitions - death taxes

Death taxes

“Death taxes” is a negative term used to describe taxes that are imposed on a person's property after they die. There are two types of death taxes: estate taxes and inheritance taxes. Estate taxes are taxes on a person's estate before their property is transferred to another entity. Inheritance taxes are taxes on property that is transferred to a specific entity from an estate. The federal estate tax threshold is currently set at $11.7 million until 2026. Twelve states have an estate tax in addition to the federal tax. There is no federal inheritance tax, but six states have a local inheritance tax.

Example 1: John passed away, and his estate was worth $15 million. His estate would be subject to the federal estate tax because it exceeds the threshold of $11.7 million.

Example 2: Mary inherited $500,000 from her grandmother's estate. She lives in one of the six states that have a local inheritance tax, so she would have to pay a tax on the $500,000 she inherited.

These examples illustrate how death taxes work. In example 1, John's estate is subject to the federal estate tax because it exceeds the threshold. In example 2, Mary has to pay a tax on the money she inherited because she lives in a state that has a local inheritance tax.