Do taxes affect inheritances in Wisconsin?

| Sep 30, 2020 | Estate planning, Uncategorized |

After your loved one passed away, you may have learned that you would inherit part of their estate. As you wait for your share to disburse, you will likely have concerns about whether you will pay taxes on it. Besides federal estate tax laws, some states impose their own estate taxes. And a few states impose inheritance taxes, too. Yet, these payments are unlikely to affect your inheritance in Wisconsin.

Estate taxes versus inheritance taxes

Many people confuse estate taxes with inheritance taxes, since the two seem similar. Yet, estate taxes are levies on a decedent’s estate, paid for with its assets. And inheritance taxes are levies on beneficiaries, paid for once they receive their share of the decedent’s estate. There is no federal inheritance tax. But the federal estate tax applies to individual estates worth more than $11.58 million and marital estates worth more than $23.16 million.

The situation in Wisconsin

Unless your loved one’s estate was worth more than $11.58 million – or $23.16 million if they were married – it will avoid federal taxation. Wisconsin does not have a state estate tax, nor does it impose an inheritance tax. Any assets you inherit from your loved one, then, will likely pass to you tax-free. The exception is if your loved one lived in one of six states with inheritance taxes. Your tax obligation, in this case, may depend on your relationship with your loved one, as well as the share of their estate you receive.

Other tax factors to consider

Your loved one may have designated you as the beneficiary to their 401(k) or IRA accounts. Once you take distributions from these, you will have to include them on your federal and state income taxes. And if you sell an asset – like a home – that your loved one passed on to you, you will pay capital gains taxes on any profit you make.

While it is unlikely you will pay taxes on your inheritance in Wisconsin, you will not want to leave this outcome to chance. An estate planning attorney can help you make sense of its current and future tax implications.