Inheritance Taxes Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Inheritance Taxes, written in plain English, along with examples of how it is used.
What is Inheritance Taxes?
Taxes that an heir has to pay on property that they inherited. Type of death tax.
History and Meaning of Inheritance Taxes
Inheritance taxes, also referred to as estate taxes, are taxes that heirs have to pay on property they inherit, including cash, real estate, and other assets. In the United States, the federal government, as well as some state governments, impose inheritance taxes on certain estates to help generate revenue. The idea behind inheritance taxes is that heirs who inherit a large sum of money should contribute to society's well-being, just as those who accumulate wealth through work or investment are expected to do so.
The history of inheritance taxes can be traced back to ancient civilizations like Egypt, Rome, and Greece, where inheritance laws and taxes were in place to manage and distribute assets after a person's death. In the United States, inheritance taxes were first introduced in 1797 as a way to fund the country's war effort against France. Since then, the inheritance tax system in the U.S. has gone through numerous changes, with the current tax system being established under the Tax Cuts and Jobs Act of 2017.
Examples of Inheritance Taxes
- Mary inherited her parents' estate worth $4 million. She was required to pay $500,000 in inheritance taxes to the federal government.
- John inherited his grandfather's art collection valued at $500,000. He had to pay state inheritance taxes of $25,000 on it.
- After her husband's death, Lisa inherited a retirement account worth $300,000. Since the account was below the federal and state exemption limits, she was not required to pay any inheritance taxes.
Legal Terms Similar to Inheritance Taxes
- Estate taxes: Similar to inheritance taxes, estate taxes are taxes levied on the transfer of property at death.
- Gift taxes: Taxes due on gifts of property given during a person's lifetime.
- Generation-skipping transfer taxes: A tax imposed on assets that are passed down to beneficiaries two or more generations younger than the donor.