Legal Forms of Will in Relation to Federal and State Taxes

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Upon
a property owner’s death, various taxes will then have to be applied in the
event of property transfers.  There are
two general types of taxes and these include the estate tax, and the inheritance
tax. 

Basically
an estate tax, which is considered as a government tax, is applied during the
transfer of properties upon a person’s death. 
Assets will have to be assessed in order to determine the amount of
estate tax, which is paid out in advance. 
These assets will then be properly distributed to the different
beneficiaries.  On the other hand, an
inheritance tax is the amount of tax deducted on the actual property being
transferred to the inheritor.  The amount
of tax is determined by a recognized financial organization, or in this, case
the state or federal government.  

Different
states have different local rules and regulations regarding the amount of
additional estate taxes or inheritance taxes. 
Furthermore, the federal government or the state could impose a gift tax
on a property transfer.  Basically the
state of Nevada is the only place where they do not impose any estate,
inheritance, or gift taxes.  Before thinking
about transferring your properties, do know your local state tax situation
beforehand. 

The
Federal Income Tax Code has released an estimated 95% federal estate tax
liability of the American public upon their death, which is a testament of
estate taxes.  According to the IRS
rules, a person’s assets will be exempted for the first $1 million from all
estate taxes.  For a married couple, each
one is entitled a separate $1million tax exemption.  Throughout the years, this rate has been
increasing steadily: in 2004 to $1.5million, in 2006 to $2million, and in 2009
to $3.5million.  There are even reports
that the tax code will be changed again in 2010. 

Furthermore,
an individual’s estate that is left to a spouse upon death is also exempted
from any federal estate tax.  Individuals
who have assets beyond the minimum tax exemption can still look for legitimate
and legal ways to decrease any tax liability. 
It is recommended that you should consult a tax professional before
preparing a will to determine the best way of asset management.

For
those with a total estate value less than $1million, there is a minimal or even
no estate taxes.  The fact is that most
estate tax laws are directly influenced by the federal estate tax
regulation.  With this, for those with
estate properties under $1million, there is a level of exemption from the state.  Furthermore few states impose additional
estate taxes. 

Additionally,
less than half of US states impose inheritance tax to an individual who has
inherited a property.  It is quite
noticeable that there are high tax exemptions on inheritance taxesArticle Search, which are
scaled down so that any direct family will have lower tax rates than their more
distant relatives or any unrelated individual who has received an
inheritance. 

Most
Americans have already taken into account tax considerations when preparing for
a will.  These factors can usually affect
only a fraction of the inheritance.