how an inheritance works
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 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 1an 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 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 descendants 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 life insurance is not subject to inheritance taxes if you wish to avoid an inheritance tax consider taking out a life insurance policy with your heirs named as beneficiaries the probate processprobate is the legal process by which a decedent s assets are divided among their heirs and beneficiaries according to their will and state laws if the decedent died with a will that will is reviewed by a probate court which appoints an executor for the decedent s estate the executor is then responsible for dividing the estate among the people named in the will and any creditors any disputes are resolved through probate court a person who dies without a will or with an invalid will is said to have died intestate in this circumstance the probate court will appoint an administrator of the estate to divide the assets according to state laws beneficiaries vs heirsthere 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 this is a set of rules created to sort out inheritance matters in the absence of a will 