Inheritance Tax

### What is a primary difference between inheritance tax and estate tax? - [x] Estate tax is levied on the entire estate before distribution; inheritance tax is levied on individual shares received. - [ ] Both are levied after the distribution of estate. - [ ] Estate tax applies only to real estate, while inheritance tax applies to all property. - [ ] Inheritance tax is applicable only at the federal level. > **Explanation:** Estate tax is calculated on the entire estate before distribution to heirs, while inheritance tax is chargeable upon each heir’s share received. ### Who is responsible for paying the inheritance tax? - [ ] The estate executor - [x] The individuals inheriting property - [ ] The deceased individual - [ ] Tax collectors > **Explanation:** The inheritance tax obligation falls on the individuals who inherit the property, not on the estate executor or the deceased. ### In which situation might heirs pay different rates of inheritance tax? - [ ] If they inherited property from the same section of the estate. - [x] If they are different relatives (e.g., child vs. distant cousin). - [ ] If they inherit property of similar value. - [ ] If they inherit only monetary assets. > **Explanation:** States may impose varied tax rates based on the relationship of the beneficiary to the deceased, allowing lower rates for closer relatives, like children. ### Which property would typically be subject to inheritance tax? - [x] Real estate - [ ] Properties under current ownership - [ ] Personal gifts received more than three years before death - [ ] Property located outside the state of death > **Explanation:** Inheritance tax is charged on inherited assets such as real estate, cash, stocks, and other property transferred upon death. ### Can inheritance taxes be avoided through proper estate planning? - [x] Yes, through options such as trusts or gifts during the decedent's lifetime. - [ ] No, inheritance tax is unavoidable. - [ ] Only for physical assets. - [ ] By dissolving property value before death. > **Explanation:** Strategic estate planning tools, like trusts and inter-vivos gifts, can minimize or avoid inheritance tax liability. ### Which is true about inheritance tax rates among various states? - [ ] All states have the same standardized tax rate. - [ ] Only federal rates are applicable for all states. - [x] Different states may have different rates and exemptions. - [ ] Inheritance tax rates only depend on federal laws. > **Explanation:** Inheritance tax rates, exemptions, and applicability vary widely among different states. ### Does inheritance tax apply to recipients of life insurance proceeds? - [ ] Yes, always. - [x] Not typically; subject to federal estate tax if applicable but generally exempt from inheritance tax. - [ ] If more than one policy exists. - [ ] Only in special cases. > **Explanation:** Life insurance payouts are often exempt from inheritance tax but may be subject to federal estate tax depending on circumstances. ### What term describes a person receiving property from a decedent? - [x] Heir - [ ] Executor - [ ] Benefactor - [ ] Trustee > **Explanation:** An heir is a person legally entitled to receive property upon the decedent’s death. ### Inheritance tax is often influenced by which of the following factors? - [ ] Market conditions at the time of death. - [x] Relationship to the deceased. - [ ] Decedent’s state of financial health. - [ ] The acceptance willingness of heirs. > **Explanation:** Inheritance taxes can vary greatly depending on the beneficiary's relationship to the deceased, with closer relatives often paying lower rates. ### If someone receives an inherited asset valued at $80,000 in a state imposing a 7% inheritance tax, what is the tax due? - [x] $5,600 - [ ] $560 - [ ] $8,960 - [ ] $10,000 > **Explanation:** The tax due is 7% of $80,000 which equals $5,600.