When it comes to estate planning, a lot of people have questions about estate and inheritance taxes. Will you have to pay tax on an inheritance you receive? How much will that be? Will it be a state tax, a federal tax, or both? When will you have to pay this tax? How does this differ from an estate tax, if it differs at all?
To help answer some of these basic questions, let’s take a look at the difference between estate and inheritance taxes in the state of Colorado. While it’s important to understand this basic distinction, it’s also important to realize that state and federal laws can, and do, change significantly. It’s always in your best interest to talk to a lawyer about any questions you have about current estate and inheritance tax issues because the legal landscape can change.
Estate Taxes in Colorado
When someone dies leaving behind property in the state of Colorado, it’s possible for an estate tax to apply to it. An estate is the collection of property you leave behind after death, and estate taxes, therefore, are taxes that apply to that property. In other words, you never have to pay an estate tax while you are alive.
Estate taxes can exist at both the state and federal level. For example, there is a federal estate tax, but it only applies to estates worth $5.43 million fro 2015.
Some states, such as Delaware, Oregon, Washington, and Connecticut, also have state estate taxes. Colorado is not one of these states, so anyone who dies leaving behind property in Colorado will not have to worry about estate taxes at the state level.
When a person dies and leaves behind property, that property will typically be transferred to family member inheritors. Depending on the circumstances of the decedent’s death, that person’s spouse, children, grandchildren, other family members, charities, friends, or even others might receive an inheritance. Many of the people receiving such inheritances often ask if they will have to pay an inheritance tax. Others wonder if they will have to pay an estate tax.
First, estate taxes are only paid by the estate. After you die, someone will become responsible for taking over your estate and determining whether it owes any estate taxes. If it does, it’s up to that person to pay those taxes, not the inheritors.
Inheritance taxes are different. In some states, a person who receives an inheritance might have to pay a tax based on the amount he or she has received. Only a handful of states have such inheritance tax laws, and Colorado is not among them. However, if you are receiving an inheritance from someone who resided out-of-state, you might need to contact us to determine if inheritance taxes apply to you
If you have questions about inheritance taxes, or would just like more information on estate planning contact us today. We put on informative workshops every months on the subject of estate planning, so be sure to check out our workshop page if you are interested in attending on of those.