What Is an Inheritance?
Inheritance refers to the assets that an individual bequeaths to their loved ones after they pass away. An inheritance may contain cash, investments such as stocks or bonds, and other assets such as jewelry, automobiles, art, antiques, and real estate.
How an Inheritance Works
The value of an inheritance can range from a few thousand dollars to several million dollars. In most countries, inheritance assets are subject to inheritance taxes, where beneficiaries may find themselves saddled with tax liabilities. The rates of an inheritance tax (sometimes referred to as a "death duty" or "the last twist of the taxman's knife) depend on a host of factors, including a beneficiary's state of residence, the value of the inheritance, and the beneficiary's relationship to the decedent.
- An inheritance is a financial term describing the assets passed down to individuals after someone dies.
- Most inheritances consist of cash that's parked in a bank account but may contain stocks, bonds, cars, jewelry, automobiles, art, antiques, real estate, and other tangible assets.
- Those who receive an inheritance may be subject to inheritance taxes, where the more distantly related a beneficiary is to the decedent, the larger the inheritance tax is likely to be.
- There are currently six U.S. states that impose inheritance taxes.
Currently, the six American states that have inheritance taxes are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. And in most of these states, any assets that are bequeathed to a spouse are exempt from inheritance taxes. In some cases, children are also exempt, or they may face lower rates of taxation.
An inheritance tax differs from an estate tax, which is a levy on the transfer of a deceased person's estate. But estate taxes do not apply to assets left to a spouse or to federally recognized charities, in most cases.
Beneficiaries with no familial ties to the decedent are typically subject to higher inheritance taxes than beneficiaries who are closely related to the decedent. Consider the following example: in Nebraska in 2018, a parent, grandparent, sibling, child, or other lineal descendants (including adopted children) paid an inheritance tax of 1% on assets exceeding $40,000. By contrast, relatives who were further removed from the decedent paid inheritance taxes of 13% on amounts over $15,000. All other beneficiaries, such as friends and far distant relatives, paid inheritance taxes at a rate of 18% on assets exceeding $10,000.
Beneficiaries vs. Heirs
There is a distinction between a "beneficiary" and an "heir". Beneficiaries refer to individuals named in a will, while heirs refer to people such as a child or a surviving spouse, who are entitled to receive a decedent's property, by “intestate succession”, which is a set of rules created to sort out inheritance matters, in the absence of a will.
Real World Example
Lisa Marie Presley has recently battled her ex-manager, Barry Siegel over accusations that he squandered her inheritance from her father, Elvis Presley. Her inheritance, according to the lawsuit, was worth $100 million. Siegel also countersued Presley for $800,000.