inheritance tax

noun

|Updated on: 15 May 2018

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

Recent Examples of inheritance tax from the Web

More recently, critics have said, the ownership labyrinths have given ruling families a way to avoid the country’s hefty inheritance tax and transfer power to younger generations using intra-conglomerate mergers, spinoffs or other complex tactics.

— timothy w. martin, WSJ, "Samsung to Simplify Ownership Structure, Loosening the Lee Family’s Ties," 29 Apr. 2018
Arizona also rose in the economic-outlook rankings by not having an estate or inheritance tax and for being a right-to-work state — factors deemed favorable in the Rich States, Poor States study by the American Legislative Exchange Council.

— russ wiles, azcentral, "ALEC moves Arizona up in ranking for economic outlook based on tax rates, other factors," 23 Apr. 2018
The film recounts the uneasy reunification of three siblings after their father’s death, and their efforts to keep the winery in spite of a hefty inheritance tax.

— San Francisco Chronicle, "Worth seeing at the movies week of March 30," 28 Mar. 2018
Then, O’Sullivan, who has three children from previous relationships, realized that would cost him around 50,000 euros, or about $60,000, in inheritance taxes.

— ed o’loughlin, The Seattle Times, "In Ireland, a same-sex marriage, a tax benefit and — wait — a twist," 24 Dec. 2017
The elimination of the inheritance tax in 2013 that is expected to cost about $165 million a year.

— tony cook, Indianapolis Star, "Fact checking Trump’s claims about Pence’s tax cuts in Indiana," 27 Sep. 2017
Trump and congressional Republicans also want to repeal inheritance taxes on multimillion-dollar estates.

— ken thomas and emily swanson, USA TODAY, "Trump tax plan benefits rich, companies, AP poll indicates," 25 Oct. 2017
And millionaires are virtually the only beneficiaries of the elimination of federal inheritance taxes that will be part of this and every other GOP tax plan.

— ed kilgore, Daily Intelligencer, "Republicans Are Considering a Cosmetic Slap at Millionaires in Tax-Cut Plan," 23 Oct. 2017
There’s the claim that eliminating the inheritance tax, which literally only effects people who are multi-millionaires or richer, will help farmers.

— bess levin, The Hive, "Billionaire G.O.P. Investors Are Privately Trash-Talking Trump," 27 Oct. 2017

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.

First Known Use of inheritance tax

1841

in the meaning defined at sense 1

See Words from the same year

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Financial Definition of INHERITANCE TAX

inheritance tax

noun

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

Law Dictionary

inheritance tax

noun

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