inheritance tax


Definition of inheritance tax

1 : a tax on a decedent's net estate that is levied after the estate is transmitted to the inheritors
2 : death tax especially : estate tax

Examples of inheritance tax in a Sentence

Recent Examples on the Web High inheritance taxes mean Japan has fewer moguls than other rich places, hence fewer people who might be keen to build and run posh hotels. The Economist, "Room to grow Posh hotels are scarce in Japan—and increasingly lucrative," 12 Dec. 2019 With bipartisan support, Sweden abolished the inheritance tax in 2005 and the wealth tax in 2007. The Economist, "The rich man’s world In Sweden, billionaires are surprisingly popular," 28 Nov. 2019 Data on inheritance taxes, a close cousin, are also spotty. The Economist, "A new study assesses whether inheritance taxes boost net revenues," 30 Nov. 2019 The Warrenistas write: ... Knowlton confronted an inheritance tax that directly hit the property itself. James Freeman, WSJ, "Elizabeth Warren’s Unconstitutional Wealth Tax," 25 Jan. 2019 Florida, which does not have a state income tax or an inheritance tax, has long been a place for the wealthy to escape the higher taxes of the Northeast., "Trump, lifelong New Yorker, declares himself a Florida resident - The Boston Globe," 1 Nov. 2019 Florida has no state income tax or inheritance tax — something many wealthy individuals from athletes to celebrities have moved to the state in order to take advantage of. Petra Cahill, NBC News, "The explosive Maria wildfire, Trump kisses New York goodbye, and "The Irishman" arrives: The Morning Rundown," 1 Nov. 2019 Another perk: Many AIM stocks are exempt from inheritance tax if they’ve been held for at least two years. Washington Post, "Settling the Wild West: Companies Put Down Stakes on U.K.’s AIM," 17 May 2019 Likewise, Florida does not require inheritance tax, unlike New York, which imposes a tax rate as high as 16% for estates over $10.1 million, which could impart potential savings for Trump's heirs down the line. Lauren Hubbard, Town & Country, "Donald Trump Has Changed His Residency From New York to Florida," 1 Nov. 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'inheritance tax.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of inheritance tax

1841, in the meaning defined at sense 1

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The first known use of inheritance tax was in 1841

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Last Updated

24 Jan 2020

Cite this Entry

“Inheritance tax.” Dictionary, Merriam-Webster, Accessed 20 Feb. 2020.

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More Definitions for inheritance tax

inheritance tax


Financial Definition of inheritance tax

What It Is

An inheritance tax, also called an estate tax, is a tax assessed on all or a portion of an inherited estate. Life insurance, pensions, real estate, cars, belongings and debts are all part of one's estate. "Death tax" is generally a pejorative term for this concept.

How It Works

Inheritance tax rates vary, and only the portion of an estate value above a certain threshold is taxed at rates as high as 50%. These "thresholds" often change yearly. Many states used to receive a portion of the estate taxes recovered by the federal government, but now many states levy their own estate taxes instead. Each state sets its own estate tax rates and exclusions.

Inheritance taxes usually apply to assets inherited by heirs, but they usually don't apply to assets inherited by spouses. Inheritance taxes on small businesses and farms left to heirs also face unique estate tax treatment.

Step-ups, which refer to an increase in the price at which an investment was purchased, reduce tax bills because the IRS essentially pretends the original cost of an asset is the market value when you inherit the assets. Thus, heirs can sell those investments immediately and might pay little or no income tax.

Why It Matters

Inheritance taxes are not the same as probate fees, which can also cost thousands of dollars. Settling an estate may also involve executor fees, court fees, recording fees and attorney fees. In many cases, inheritance taxes and fees must be paid as the estate is probated, meaning that the heirs will need to come up with the money just about immediately after a person's death. In many cases, the heirs either have to sell the assets they've inherited just to pay the taxes and fees or they have to borrow money to do so. Part of estate planning, therefore, is preparing for the taxes due upon one's death, and where one lives can have a significant impact on the amount of estate tax his or her heirs pay.

Many people attempt to reduce the size of their estate while they're still alive by giving away portions of their estate. This can be done without triggering estate taxes as long as the gifts are below the gift-tax exemption limit. Establishing a trust often reduces estate taxes because it allows a person to transfer legal title of his or her property to another person while he or she is still alive. It also gives the trustee (the person acting on behalf of the deceased person, sometimes called the decedent) the authority to distribute assets immediately to the beneficiaries based on the terms of the trust. No court is involved, so there are no probate fees and no public record of the value of the estate. Many financial advisors urge clients to have trusts, especially those who live in states where probate fees are especially high or if the client owns a home or real estate. Trusts are not for everyone, however, so it is important to seek proper financial advice.

Source: Investing Answers

inheritance tax


Legal Definition of inheritance tax

: an excise tax that is levied upon the privilege of receiving property as heir or next of kin under the law of intestacy and that is measured by the value of the property received — compare estate tax

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