Difference Between Inheritance and Estate Tax

The difference between the estate tax and the inheritance tax is quite easily defined. The estate tax is imposed on the value of the estate when the benefactor passes away. However, the value of that estate may be altered before any beneficiary inherits from that estate. There are some allowable deductions, such as funeral expenses, which lower the tax burden on the estate.

Yet, if the value of the estate were to drop the next day, due to a stock market crash for instance, the estate tax would still be imposed on the value of the estate on the day the benefactor passed away. Whereas, the inheritance tax is imposed on the value of property a beneficiary inherits. If the beneficiary inherits only a portion of the estate, then the inheritance tax would be on the value of that portion of the estate.

The estate tax is imposed on the value of the estate, on the very day that the benefactor passes away. While some assets, such as stocks, may substantially increase or decrease in value, the tax is imposed on the value of the stocks, on the day the benefactor dies. In addition, the estate tax is levied after allowable deductions, such as the cost of funeral and any benefactor debt, have been deducted form the value of the estate. In many cases, estates are subjected to an estate tax on the federal and state level. Each state will have varying allowable deductions on the estate tax.

Inheritance taxes can also be reduced, or subject to exemptions. In many states, spouses, or children, can inherit money tax free, or face reduced inheritance taxes. In addition, spouses that share property jointly, are likely to be able to avoid the inheritance tax on that property. In addition, if a benefactor leaves all, or part of their estate to a charity, the charity can avoid the inheritance tax. In other cases, the beneficiary is responsible for the full inheritance taxes placed as tax burden on the specific amount inherited.

In some case, benefactors and beneficiaries may be subjected to the estate tax and inheritance taxes. However, due to a lapse in Federal laws, there is no federal estate or inheritance tax in the year 2010. In response to that lapse, several states have also allowed their inheritance taxes and estate taxes to lapse, at least for now. The tax revenue from the estate tax and the inheritance tax is estimated to be very beneficial to the tax jurisdictions that impose them.

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