Ask Liz Weston

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estate tax

Q&A: When giving cash gifts, does anyone need to pay taxes?

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Dear Liz: I am a widow age 95. I would like to give my three kids, who are in their 60s, $5,000 each this year. What are the taxes, and who pays them?

Answer: Gifts aren’t taxable to the recipients, and the only givers who have to pay taxes are those who have given away millions of dollars during their lifetimes.

Let’s start with the basics. You only have to file a gift tax return, which notifies the IRS of your generosity, when you give someone more than the annual exemption limit, which is $18,000 in 2024. So you could give your kids $54,000 before the end of the year and not have to tell the IRS.

You wouldn’t actually owe taxes on your gifts until the amounts you give away above that annual limit exceed your lifetime gift and estate limit, which is currently $13.61 million.

A taxable gift is typically deducted from the amount that avoids estate taxes at your death. But if you have enough money to worry about that, you should have an estate planning attorney who can advise you about how to proceed.

Q&A: Estate tax versus inheritance tax

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Dear Liz: In a recent column, you wrote that “only six states … have inheritance taxes.” My state of Oregon is not listed. Oregon certainly has an estate tax (one of the highest in the U.S.) and Washington also has one.

Answer: Many people confuse estate and inheritance taxes, but they’re not the same thing.

As the name implies, estate taxes are taxes levied on the dead person’s estate. The federal government, 12 states (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington) and the District of Columbia have estate taxes.

Only the six states mentioned in the previous column — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — have an inheritance tax, which is levied on the person who inherits. New Jersey had an estate tax, but that was repealed in 2018, leaving Maryland as the only state with both types of tax.

Q&A: Tax take on inherited house

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Dear Liz: In a recent column, you quoted an attorney saying that if an inherited home in a trust is sold for its value at the date of death, the trust won’t owe capital gains. We sold our family’s house in 2007 within a month of my mother’s death and the government took half. Fortunately it was a really valuable house in Brentwood, but what are you talking about? I must be missing something.

Answer: If the government took half, then estate taxes — rather than capital gains taxes — probably triggered that hefty bill.

When your mother died, the estate tax exemption limit was much lower — $2 million, compared with the current $11.4 million. The top federal estate tax rate then was 45%, compared with 15% for capital gains.

Thursday’s need-to-know money news

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Today’s top story: Which states have estate and inheritance taxes. Also in the news: Why making money with online games is a bad bet, cities with the most and fewest young homeowners, and a decade after the Great Recession, 1 in 3 Americans still haven’t recovered.

Which States Have Estate and Inheritance Taxes?
How about your state?

Making Money With Online Games Is a Bad Bet
Don’t get lured in.

Millennial Homeownership: Cities With the Most and Fewest Young Homeowners
Where does your city rank?

A decade after Great Recession, 1 in 3 Americans still haven’t recovered
Women and African-Americans have been the hardest hit.

Who owes taxes after death?

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Dear Liz: My brother passed away, and for one of his bank accounts, he had named me as his beneficiary. Do I have to pay taxes on the $100,000 I received? Is it subject to a gift tax?

Answer: Estate taxes are paid by estates, not by inheritors, said estate attorney Burton A. Mitchell of Los Angeles firm Jeffer Mangels Butler & Mitchell. The vast majority of estates don’t owe taxes anyway, now that the estate tax exemption limit is over $5 million.

Some states have estate taxes with lower exemption limits, and a few have what are called “inheritance” taxes, which are levied based on the relationship of the heir to the deceased, Mitchell said. The more distant the relation, the higher the tax rate. Siblings typically face a higher rate than spouses or children. Ask the executor of your brother’s estate whether any of these taxes apply.

Gift taxes, meanwhile, are the responsibility of the giver and again aren’t an issue for the vast majority of people. Your brother would have had to give away more than $5 million in his lifetime for federal gift taxes to be an issue.

Your inheritance may, however, be subject to creditors’ claims if your brother didn’t leave enough money to satisfy his debts, Mitchell said. Check with the executor of his estate and consult an attorney if necessary.