An inheritance tax is a tax on the assets that a beneficiary receives from an estate. The good news: Massachusetts doesn’t have an inheritance tax. However, if you’re inheriting money from someone who lived out of state, you need to check the laws of that state.
If you’re inheriting assets from another state, the first thing to do is to check the will or trust to see if they address how inheritance taxes will be paid. Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania are states that impose an inheritance tax.
Maryland is the one state that has both an inheritance tax and an estate tax. Its inheritance tax is up to 10%. As to the others, Nebraska’s inheritance tax can be as high as 18%. Kentucky and New Jersey both taxes inheritances at up to 16%. Iowa’s inheritance tax is up to 15%, as is Pennsylvania’s.
Each state has its own laws dictating who is exempt from the tax, who will have to pay it, and how much they’ll have to pay. Spouses living in those states and certain other heirs are usually excluded by the state from paying inheritance taxes.
Let’s say you live in Massachusetts and you inherit from your uncle’s estate. He lived in Kentucky at the time of his death. You would owe Kentucky a tax on your inheritance because Kentucky is one of the six states that collect a state inheritance tax. What if your uncle lived in California but the property he leaves you is located in Kentucky? You would be subject to Kentucky’s inheritance tax since the property is physically located there.
Keep in mind that even though Massachusetts doesn’t have an inheritance tax, it does have an estate tax. Estate tax comes out of the deceased’s pocket. Inheritance taxes come out of the beneficiary’s pocket.
As an experienced Massachusetts estate planning attorney, I can help you understand how taxes can affect your estate plan or your inheritance. And I can work with you to create an estate plan that will minimize the effect taxes have on your estate. Contact us today to schedule a free, no-obligation consultation.