When a person is listed as a beneficiary in someone’s last will and testament, a legal process takes place before the inheritance is distributed. Misperceptions often exist regarding the implications an inheritance might have on a beneficiary’s finances. Two terms, which are often used interchangeably, “estate tax” and “inheritance tax” are, in fact, two separate issues that beneficiaries will want to learn more about before receiving an inheritance.
The key difference between estate taxes and inheritance taxes is that the former is paid from a decedent’s assets before final distributions are made to beneficiaries. In other words, when a beneficiary receives an inheritance check, estate taxes have already been paid because the decedent’s assets are taxed as a whole sum before they are divided between heirs or beneficiaries. Inheritance, on the other hand, is a tax on an inheritance.
There is no inheritance tax in Minnesota
Anyone receiving an inheritance in Minnesota who read the previous section and began to worry about inheritance tax can relax. This state does not impose a tax on inheritance. In fact, only six states do. There are certain cases, however, where a beneficiary may have to pay income tax to the state in which he or she resides, if an inheritance includes pre-tax dollars, such as an IRA or annuity.
Where to seek support for estate administration questions
Minnesota estate administration and probate can be basic and easy to navigate or complex and quite strenuous. A probate and estate planning attorney can provide support throughout the process, whether to an executor, heir or beneficiary, especially if there are questions regarding estate tax, inheritance tax or other issues. An attorney can also act on a person’s behalf to contest a will, if necessary.