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How estate or inheritance tax works

The quote by the ever famous Benjamin Franklin once said that “In this world nothing can be said to be certain, except death and taxes.” It may be an old, sardonic aphorism but nevertheless is universally true and pretty much accepted. One delightful area of tax law manages to combine both death and taxes into a single experience and this is the estate or inheritance tax. In fact, what happens to your money when you die seems to be the source of quite a few old questions to oneself. Many people would usually use clich├Ęs such as “You can’t take your money with you,” among others. What it all boils down to is pretty much straightforward. This is that when you die, you leave your money, your home, your possessions and other things of material value behind and you really cannot take it with you. You will pass them down to your children, to other family members or friends, or to charity as well. And one way or another, the government will take its share without your consent. In practice, of course, nothing is as simple as that. The property of the deceased might be subject to inheritance tax, or the so called estate tax, state and federal tax statutes, and a host of exemptions that may actually put more money in the pockets of the heirs. Because inheritance and estate taxes which are also sometimes known as “death taxes” are generally seen as a tax on the rich, since they are the most affected and these tax laws also get batted around as political footballs from time to time. In fact, President Obama has even signed a law changing federal estate taxes which was effective in 2010, and there are likely more changes to come. If you are interested in planning ahead for that inevitable day when you or a loved one passes away, you have made a good decision. In this article, it is explained what the difference between inheritance and estate tax is, and how to avoid as much of those taxes as legally possible, and what the actual rates are for those taxes as well. What would exactly count toward the estate, anyway? Would it just include the money in your piggy bank? The bank account? The summer home in the Hamptons? An estate is all of those things, and more like Cash, accounts, real estate, stocks and bonds and other business interests, and valuable goods like cars, boats, art pieces or rare collections. An appraiser will determine the fair market value of everything to be able to figure out the taxable value of the estate. So far, for anyone who dies and wants to leave anything of value to his or her heirs, things look pretty grim. There’s a bright spot, though — exemptions that reduce the taxable amount. We’ll discuss that next.

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