There is no need for Utah residents to worry about a state estate or inheritance tax. Utah doesn’t impose these types of charges. As a part of Probate Law, some states impose an inheritance tax. Now, this may change, so if you’re reading this you should still call and get your free consultation, because laws change all the time. An estate tax is where a tax is levied on people who owned property in the state where they stayed. Inheritance tax is a tax levied on people who inherit property from a person who lived there. Even though Utah does not collect inheritance tax, you may end up paying for it in another estate, if you inherit property from someone who lived in a state that levies inheritance tax. The following states have inheritance tax Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania, and Maryland. The inheritance tax will depend on the amount you inherited and how close you were to the deceased person. If there is a surviving spouse, they do not need to pay any inheritance tax. The good news is that some states exempt small inheritances. There could be a federal estate tax bill. However, this happens only if the deceased person left millions in assets. This type of tax comes from the estate of the person who died.
Utah estate tax
There are 38 states with no estate tax, and Utah is one of them
What is the estate tax?
Sometimes, an estate tax is known as a death tax. It is a tax levied on the estate of a person who died recently. It is for the money and the assets in the estate before they are distributed to the heirs of the deceased person. The only states that are subject to the estate tax are the ones which can reach a legally defined threshold.
Inheritance tax
Inheritance tax applies to the money after it has been disbursed to the beneficiaries who are responsible for paying taxes. In Utah, the inheritance tax is not levied. However, if someone from a state that collects inheritance tax leaves your property, then you have to pay for the fee. If you inherit property or money from someone out of –state, ensure that you check the laws first. It is always advised that you become prepared for the tax instead of finding out later that you were to pay a tax bill and you did not pay.
Gift tax
The federal government levies tax on gifts of money or property about a certain amount. If a state does not have such a charge, someone who has a significant amount of estate can give out a large portion of their property before they die to escape all the taxes imposed on the property. Therefore, a gift tax is known to work as a backstop to the estate tax. However, only a few people pay for gift tax in their lifetime. A gift program can help to reduce overall transfer taxes substantially. However, planning and getting committed to proceed with the gifts is much required.
Federal estate tax
Even though Utah has no estate tax, there is still a federal estate tax that you have to take care of. The federal government may impose some tax on your property when you die. There is always an exemption for the federal tax for property worth .18 million or more. This exemption also applies to a married couple who can handle up to $22.36 million. Beyond that, they are liable to pay this tax whose top rate is 40%
Inheritance tax, like any other tax, has its advantages and disadvantages. In Utah, they are missing out on the benefits that come along with imposing an inheritance tax. However, they are enjoying when they evade the disadvantages that are brought about by inheritance tax.
Pros of inheritance tax
It cuts down the levels of inequality
In the playing field, the haves is being favored more than the have nots. However, this tax helps bring equality to all of them. By imposing this tax on those who have property above specific amounts, the US government uses this money to fund projects and create employment opportunities for those who are financially down. Therefore, everyone benefits from the tax.
Charitable donations increase
Because of this tax, many people who have a lot of wealth donate it to the less fortunate and charity organizations to reduce their overall net worth and evade this, as well as many taxes. As a result, their tax liabilities after their death is diminished and in exchange, the social programs needed by the world right now are funded, and they keep on helping the less fortunate and the financially unstable
It is as a reward to success
The average income in the United States is just above $5ok annually. This is like 1% of the exemption for this tax. Practically, an estate that is worth $10 million would have a potential tax liability of $2 million because the $5 million is above the exemption threshold. This means that success is still recognized ad rewarded even though the tax levels are quite high on this amount. This is because the estate still possesses a large amount of money, property, and assets to hand down to its heirs.
Special rules apply to specific industries
As a result of the nature of this tax, small businesses are exempted from paying it. However, there are particular farms and family businesses that may go beyond the threshold of million through the real estate assets that they possess. To be able to avoid unnecessary burdens to heirs, there are special rules set aside for such businesses, to prevent the tax from being applied on them.
It is progressive
Inheritance tax is progressive. The more people receive inheritance beyond the exemptions limit, the more the charge they will have to pay. Therefore, most of the burden of the tax falls on the shoulders of the wealthy in the society, and it gives the government the chance to level the playing field by distributing the property again to those in need.
Cons of inheritance tax
Probably, what has made Utah get rid of inheritance tax is a stepping stone to them. Their reasons are merely the cons of inheritance tax as listed below:
Some people see it as a form of income redistribution
The American dream has always revolved around pulling up your socks by your bootstraps to make life possible for yourself. If you happen to die, then all the wealth you attained and the success you had should not die with you, yet this is what inheritance tax tries to achieve in the eyes of some people. The government tries to pull out a massive amount of money that you had worked extra hard for yourself and your family and then uses it for helping the people who have not been able to experience the same levels of success. This does not sound fair at all because it is your death which determines the redistribution of your hard-earned wealth
It is quite expensive to get an evaluation of assets that will be proper
Although inheritance tax raises billions every year, it is less than 1% of the overall revenues that are brought in every year in the government finance kit.
To make matters worse, the cost of bringing in this cash has the highest per capita compared to other tax revenues because the government incurs significant levels of expense in evaluating and collecting the revenues from the heirs. Therefore, unnecessary procedures and revenues are committed to bringing the inheritance tax on board and yet it is bringing minimal revenues to the table
It can force families to sell their businesses
In places where inheritance tax is levied, there is protection for small companies such that they do not get burdened by this tax. However, few businesses fall through the cracks every year. A couple of companies end up selling their assets so that they can be able to meet the requirements levied on them by the government to meet the tax. This does not consider the welfare of these families. What will happen after they have sold their businesses? Maybe the deceased was there, and after that, they cannot be able to meet the expenses, and with no companies at hand, it can be quite hard on them
It reduces the available capital
Even though a business can get through the inheritance tax, the amount that is owed goes a long way to limit the amount of liquid cash that the heirs will be able to access. This can push them to be potentially bankrupt or drive the company out of business after some time because of the liabilities that come along with the tax. In some situations, some of the income being taxed may have already been taxed through other methods. This comes up with a case that benefits the government only.
What happens to your inheritance?
Your heirs will take over your loan
In most cases, federal law permits the transfer of the credit to a close relative or an heir once you die. In most of the home loans, there is a due-on-sale or acceleration clause that allows a lender to demand immediate and full payment upon transfer or sale of the home; however, removals due to death are exempt. This is an indication that your heirs would have o take on your home loan with the same interest rate and the equal payment that you have. However, this does not just happen like that. There are legal procedures which have to be followed like filing a will or letters of administration on probate court.
Your heirs may refinance your home loan
If an heir decides to keep a home, in most situations, they will have to refinance the loan, especially if they are in a position to get a lower interest rate or reduced monthly payments. If the heirs are not financially stable to finance the new loan, they can always agree to pay every month and still keep the house.
Your heirs may get your property free and clear
You may make your relatives lucky if you have some estate. This estate may have enough funds to finance the mortgage or pay off the loan. You have to indicate in your will the assets that you possess and give directions on the way they can be sold to retire the mortgage. If you had a mortgage protection insurance policy, it would help a great deal by automatically paying off the loan balance. It is advised that you have the insurance policy if your relatives or the heirs are not financially stable enough to make the payments or afford a refinancing.
Your heirs may not afford the monthly payments
If the mortgage becomes too hard for your heirs to handle, they may decide to sell the home or walk away. And in most cases, heirs walk away when they cannot meet the burden. Mostly, the instances where the house is worth less than the balance on the mortgage, most heirs see walking away as the wisest decision. However, there are cases when there is a sentimental attachment between the heirs and the home. In such a scenario, you can always try to work out something with the lender and agree on new terms of payment. Some lenders may forgive some of the debts, but in rare cases.
You took out a reverse mortgage before your death
A reverse mortgage is considered to be a lien to the home. When there is no co-borrower or the co-borrower is also dead or is no longer living in the house, the loan becomes due when the borrower dies. The heirs will only be able to inherit the house itself if the reverse mortgage balance can be paid off without having to sell the property. To achieve this, your heirs will be forced to pay off the balance together with the cash from the estate or another source or finally take out a new loan. The most expected outcome is that your heirs will inherit whatever equity is left after the home is sold and the lender gets paid.
Plan Your Estate
The pros and cons of inheritance tax show how vital and no-important the fee is. In Utah, the cons overweighed the, and probably that is why they decided to cut it out. What do you think? Is inheritance tax worth it?
Estate Lawyer Free Consultation
When you need help with an estate in Utah, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
