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While the federal estate tax often draws public attention, a lesser-known and still-active levy persists in several states: the inheritance tax. Currently, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania impose this tax on recipients of inherited assets.
Unlike estate taxes which are paid by the estate itself the inheritance tax is paid by the beneficiary, based on the value of assets received. Rates and exemptions vary by state, and the relationship between the deceased and the beneficiary often affects the amount owed.
The tax typically applies to non-immediate relatives or non-family members, though rules differ. Close family such as spouses or children are frequently exempt in most of the states that impose the tax.
Though only five states still levy an inheritance tax, financial advisors suggest individuals with estate ties in these jurisdictions understand local tax implications to avoid unexpected liabilities for beneficiaries.
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