Taxes are something that most of us consider at one point or another in our lives, and that includes taxes on inheritances. For years, politicians have made great hay out of debating the relative merits of taxes on estates and inheritance, with some extoling the revenue benefits these taxes can provide and others criticizing them as an unnecessary “death tax” on wealth that was already taxed in life. For Georgia residents, and those residents of other states who stand to inherit property from someone in our state, neither tax is of any concern. Georgia does not levy its own estate tax, and no one needs to worry about a Georgia inheritance tax either.
Georgia Has no Inheritance Tax
Across the nation, there are only six states that have an inheritance tax on their books. These include Pennsylvania, Maryland, New Jersey, Kentucky, Nebraska, and Iowa. That’s it. An additional fifteen states also levy some type of estate tax. Georgia is noticeably absent from both lists, so residents who live within the state have no need to fear that their heirs will be subject to either type of taxation when they die.
Of course, Georgia has no inheritance tax even during that period of time in which the state levied an estate tax, but many taxpayers often confuse the two taxes. While neither tax is currently levied in the state, it is important to understand the difference between them. An estate tax is a tax that is levied against a decedent’s estate prior to the distribution of assets to heirs. That tax levy reduces the size of the estate before a penny of inheritance is ever doled out to those who have been left a legacy. The inheritance tax is something different. It is a tax that is levied against the heir after he or she has received the inheritance.
The estate tax in the state was essentially gutted in the wake of the 2001 Economic Growth and Tax Relief Reconciliation Act, which gradually reduced the estate tax and ultimately ended its collection. The final repeal of the state’s estate tax was formalized only a couple of years ago, and took effect July 1, 2014. That eliminated any worries over the state estate tax, and should also end any confusion over whether or not Georgia has an inheritance tax.
But What About Other States?
Though Georgia residents have no need to worry about an inheritance tax levied by their own state government, that doesn’t mean that they have no reason to be concerned about inheritance taxes in other states. A Georgian who is receiving an inheritance that includes property or assets subject to the inheritance tax laws of one of the nation’s six inheritance tax-levying states could still find himself paying that outside state’s inheritance tax. That same principle holds true with respect to other states’ estate tax assessments as well. Ultimately, it depends on the type of assets that are being inherited, and where they are located.
Of course, there is a positive aspect of this for some heirs. In all six of the states that currently assess an inheritance tax, the surviving spouses of the decedent are exempt from any inheritance tax. That’s good news for those whose spouses pass away with assets in any of those six states. Kentucky takes this even further, and exempts the deceased’s parents and children as well – and other states tend to assess lower inheritance tax rates for these family members. Obviously, this can all get rather confusing.
Naturally, there is also the issue of the federal estate tax – which is enforceable against all qualifying estates throughout the United States. So, even if you don’t have to worry about another state’s estate or inheritance tax, your loved one’s estate could still be subjected to estate tax assessment by the federal government – but again, that tax is imposed before any inheritance is distributed.
Can You Avoid Inheritance Tax?
If you’re trying to ensure that your heirs won’t have to pay those inheritance taxes levied by other states, there are a number of options available to you. The first and most obvious of these options is to simply rearrange your asset holdings so that you have nothing in those six states that could qualify your estate for an estate tax assessment. By liquidating assets and reinvesting the money in a more retirement and heir-friendly state like Georgia, you can help your loved ones to avoid the hassle of dealing with inheritance tax issues.
With the right strategies, you can avoid a great many tax-related concerns. Even if Georgia did decide to impose an inheritance tax, you could still protect certain assets from being subject to those taxes. A life insurance policy is a great example of how these strategies can work. If your life insurance policy lists your estate as the beneficiary – a fairly common tactic for many people, then inheritance taxes could come into play. On the other hand, having a named beneficiary on the policy can help to avoid the inheritance tax, while also facilitating a smoother transfer of ownership.
Still, tax concerns are never something that should be dealt with in a careless manner. Tax laws change with tremendous frequency, so it is important to always have the guidance of a competent professional whenever you are addressing estate planning issues that could have tax ramifications. An experienced estate planning attorney can help you avoid many of the most common tax problems of this type.
At Fouts Law Group, LLC, our estate planning attorneys can help you navigate the estate plan creation process in a way that takes all of these important tax issues into consideration. We can help you deal with issues related to the inheritance taxes in other states, and assist you with your efforts to plan for federal estate tax concerns. To learn more about how our team can help you make sense of these critical tax-related issues, call us at (678) 242-8344 today or contact us at our website.
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