A large share of the nation’s wealth is inherited to a few people as a result of which, millions of families in America have to deal with financial issues/less wealth. Consequently, they have fewer possibilities and opportunities to excel in their lives.
The wealth concentration reinforces difficulties for people of color to make wealth as most of the inherited wealth holders are white people. However, imposing a tax on inherited wealth can be a viable solution to build a prosperous community.
However, most state laws regarding inheritance tax are upside down and not properly defined. The lack of law and order gives a pass to the wealthy people to pay a small share of their income as tax. On the other side, middle-class families pay a large share of their income as a tax even though they cannot afford to.
State tax laws, however, have an exception. They only apply to the wealthiest individuals in the state. States should impose these laws and enact them as soon as possible by considering inherited wealth as income.
Before, discussing the states that enact inheritance tax, let’s see what it is:
What is the inheritance tax?
Inheritance tax refers to a tax on the property, including assets and liabilities that are transferred from the deceased ancestors to their heirs. A state applies inheritance tax to the property if its value exceeds a certain threshold.
Both, the inheritance tax and threshold vary from state to state. On average, almost 3% of the properties owned by wealthy individuals have inheritance tax on them.
What states have an inheritance tax?
A total of 17 states and the district of Columbia levy an inheritance tax to the wealthy people owning high-valued estates. The inheritance taxes generate about $4.5 billion annually. If all states enact the inheritance tax law, the tax collected would be more than $11 billion.
Here are some states that have imposed a tax to high-values inherited estates:
Inheritance tax rates in Maryland
As of September 2019, Maryland is the only state to impose inheritance tax as well as the estate tax. The difference between an estate and inheritance tax is that an estate state is levied on the entire property, regardless of who the owners/beneficiaries are.
On the other hand, the inheritance tax is collected from those who have received money from their deceased ancestors.
If the other beneficiary, other than the domestic partner owning joint residence receives money or the property, Maryland’s inheritance tax is applicable to him as well. The current inheritance tax rate of Maryland is 10%.
Inheritance Tax rates of Kentucky
In Kentucky, inheritance tax is classified into 3 categories: class A, B, and C. As of 1998, June 30th, a child, surviving spouse, grandchild, sister, brother, half-sister and half-brother come under class A beneficiary and are exempted from the inheritance tax.
However, the deceased’s nephew, niece, aunt, uncle, son-in-law, daughter-in-law, and great-grandchildren come under class B beneficiary and are not exempt from inheritance tax. For instance, if the class B beneficiary receives an amount of more than $1000, the amount will subject to the Kentucky inheritance tax ranging between 4% to 16%.
Inheritance tax rates of New Jersey
Despite abolishing estate laws, New Jersey will continue to collect inheritance tax who receives wealth from the deceased. Like Kentucky, New Jersey also categorizes the individuals into class beneficiaries.
Class A beneficiaries are exempted from the inheritance tax. Some of the beneficiaries are surviving spouse, daughter, son, civil union partner, domestic partner, grandparent, grandchild, adopted child and an acknowledge child.
As of 1963, New Jersey eliminated the class B beneficiary. It does not assign the wealth to the beneficiary unless he/she belongs to class A, C, D, or E.
Even though inheritance and estate tax laws are burdensome, all states should enact them as it helps to build shared prosperity and reinforces the wealthy people to pay a significant share of their incomes as taxes.