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When it comes to paying inheritance tax, many people are wary of declaring the inheritance before of the tax liability which reduced the value of the inheritance. However, in 2006 through 2008, inheritance tax exemption has increased to $2 million and estate valued over this amount is liable for the tax. In addition, the state of domicile might also have exemptions that could further reduce the inheritance tax.
As a beneficiary, you have to coordinate your own tax filing while the estate taxes will be filed by the representative handling the estate. You can get an accountant to help you and coordinate with the representative so that all returns are filled and filed correctly.
When it comes to mutual funds, the mutual fund company has to withhold inheritance tax when paying out the dividend. This means that you will get less money. As per law, this is necessary or the mutual fund company will be held liable for a third degree misdemeanor. However, it is up to you to inform the mutual fund company about the death. No payment will be made to you, as a beneficiary, unless the mutual fund company has the correct information. That is why it is mandatory for the fund to withhold inheritance taxes so that payments can be made.
When it comes to inheritance tax, your original basis is generally the fair market value of the mutual fund on the date of the decedent’s death and this value is taken for calculating inheritance tax.
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