Definition of Inheritance
An inheritance refers the assets that an individual bequeaths to his or her loved ones, after he or she passes away. An inheritance may contain cash, investments such as stocks or bonds, and other assets such as jewelry, automobiles, art, antiques, and real estate.
Breaking Down Inheritance
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.
Key Takeaway [PLEASE PLACE THESE IN A PROPER CALLOUT BOX]
--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.
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 descendant (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.
Note: 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.
[Important: 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.]