An "inheritance tax" is any other estate, inheritance, or succession tax that is imposed by a state and is not an "estate tax" based on the federal credit for state death taxes or the federal taxable estate.
State inheritance taxes are calculated using parameters from the State Death Tax Manager in the following way:
Taxable Interests: The taxable interests of the decedent (before the determination of any marital deduction) are determined as the some of the following:
- The net probate estate (i.e., the "other includible assets") of the decedent.
- The proceeds of any life insurance included in the federal estate of the decedent, but only if the state inheritance tax applies to life insurance.
- A fraction of the decedent's retirement plans if the state inheritance tax might apply to all or part of those retirement benefits. (If a fraction can be entered, there will be a button to the right of the choice of domicile on the client information input screen.)
Marital Deduction: In all cases, it is assumed that a marital trust will not be subject at the first death but will be subject to inheritance tax at the second death. Some states will impose an inheritance tax at the first death on the non-spousal interests in the nonmarital trust. In that case, a fraction for the percentage of the trust that is taxable at the first death can be entered on the Inheritance Tax Recipient Class and Other Options window (which you can access by clicking the Recipient Class button on the Client Information screen).
Rinto the program by clicking on a button to the right of the choice of domicile on the client information input screen.
If the federal gross estate includes some life insurance or retirement benefits that are not subject to inheritance tax, the program assumes that those benefits should be used first to fund the nonmarital trust, and that the taxable interests should be used to fund the marital trust or marital gift, in order to minimize the taxable value of the nonmarital trust for state inheritance tax purposes.
Calculation of Tax: After calculating the amount subject to tax, based on the total of the taxable interests net of any marital deduction, and after deducting any exemption for the estate, the program calculates the inheritance tax on the net taxable amount using the rates applicable for the selected class of recipient. (If a recipient class fraction needs to be selected, there will be a button to the right of the choice of domicile on the client information input screen.) If the inheritance tax is calculated separately for each recipient's share, then the program divides the taxable amount by the number of beneficiaries, subtracts any exemption per beneficiary, calculates the tax on the net value of each share, and then multiplies the tax per share by the number of beneficiaries to produce the total inheritance tax payable.
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