Why Does This Gift Come With A Bill?
- Posted on: Apr 17 2020
The architect Frank Lloyd Wright was known for being very particular about the way the homes he built were lived in. He often included built-in furniture in his designs, and where built-in furniture was not practical, he would suggest furniture that he felt complimented his design, often of his own creation.
Legend has it, it would sometimes send a homebuyer a chair or table months or years after they purchased the home, with instructions about where it was to be placed. After confirming receipt of the item, and accepting the heartfelt gratitude of the homeowner, he would send a bill.
Thankfully, most gifts do not come with an invoice. However, in the estate planning world, this is not always true. Sometimes bequests received after a loved one’s estate is probated come with a tax bill.
Is There an Estate Tax in Mississippi?
You might be thinking, “Not in Mississippi! We don’t have an estate tax.” And you would be sort of right. Mississippi does not have an estate tax. So, if you inherit something from someone who lived and died in the Magnolia State, or a piece of property located within our state, you are in the clear. You will not owe the government a cent just for accepting your inheritance.
However, if the person who died was from another state, or left you land in another state, you might owe that state some money. As of January 1st, 2020, there are six states that levy this sort of tax, which is known as an inheritance tax — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.
Inheritance taxes are different from estate taxes, although both are types of death taxes. Estate taxes are paid by the estate of the person who passed away, while inheritance taxes are charged to the person who inherits something from the person who passed away. Only a small percentage of estates will end up owing estate taxes. Inheritance taxes are often charged on even small bequests.
Calculating how much inheritance tax a particular bequest will trigger can be challenging. Each state has a different law on its books. Some tax all inheritances at the same rate, others only tax bequests that go to non-immediate family members, some states only tax bequests over a certain amount.
If a loved one in one of those six states has indicated that they would like to leave you something in their will, and you are concerned about paying the inheritance tax, there are a few things you can do.
First, and most importantly, talk to your loved one about it. It is unlikely they are leaving you something in your estate plan because they want to make your life more difficult or cause you stress! They may be willing to modify their estate plan to remove the bequest, or insert language that will require the estate to pay any inheritance taxes you may owe.
Or, your loved one may decide to gift you whatever item or piece of property they would like you to have now. Federal law imposes a tax on gifts worth more than $15,000, but that tax is paid by the gift-giver, not the recipient.
If having a conversation with your loved one is too awkward, you can always keep silent, but refuse to accept an inheritance. There is no law that says you have to accept a bequest you do not want.
Palmer & Slay is an experienced estate planning firm. If you have questions, about inheritance taxes or estate taxes, we are here to help. Please contact our office to schedule an initial consultation.
Posted in: Estate Planning