Is There an Inheritance Tax in Nevada?
Is there an inheritance tax in Nevada? Wood Law Group has a comprehensive guide to answer your questions. Book a free consultation call with us for more information.
Is Inheritance Tax Imposed in Nevada?
An inheritance tax is a levy imposed on a person who inherits assets from a deceased person (decedent). This tax is mandatory in certain states, but because it adds an unnecessary financial burden to their heirs and beneficiaries, many people seek to avoid this tax when making their wills. However, the only way to avoid inheritance taxes is if the state law governing the inheritance does not require it.
If you’re considering making a will or planning your estate in Nevada, you might have questions about inheritance taxes or other levies that your beneficiaries may need to pay before they can enjoy your estate. In that case, you’ll be happy to learn that inheritance taxes are not imposed in Nevada.
But there are certain circumstances in which Nevada residents may need to pay inheritance and other death-related taxes. We highlight some of those taxes and situations below and offer suggestions to help you minimize your beneficiaries’ future tax liability as you make your will or plan your estate. Keep reading to learn more.
When Is a Nevada Resident Required To Pay an Inheritance Tax?
Nevada law on inheritance taxes only applies to assets within the state. If a Nevada resident inherits property such as real estate and the property is located in a state like Pennsylvania where inheritance taxes are levied, they would need to pay inheritance taxes for that specific property to the government of Pennsylvania. It doesn’t matter if the property’s original owner (the decedent) lived most of their life in Nevada. Nevada inheritance law will not take precedence over the law of the state where the asset is located.
If you have assets in different states, you must consider the inheritance tax laws in the states where your assets are located. If the states impose inheritance taxes, you may need to find other ways to transfer your assets to your intended beneficiaries instead of leaving a will that will be governed by the inheritance tax law in those states. Contact an estate planning attorney to learn your options and help you find ways to reduce or avoid the inheritance tax burden for your loved ones.
Is Inheritance Tax the Same as Estate Tax?
Some people confuse inheritance taxes and estate taxes and often use them interchangeably. But although they are both death taxes imposed after a person’s death, they are not the same.
The primary difference between estate and inheritance taxes lies in who is responsible for the payment. Estate taxes are assessed against the value of the decedent’s estate. They are paid out of the estate before the remainder is distributed to the beneficiaries. In contrast, inheritance taxes are paid by individual beneficiaries depending on the value of the property they inherited.
Again, you might be wondering whether estate taxes are imposed in Nevada. Thankfully, the answer is no. Nevada law does not require the payment of estate taxes. However, the law in Nevada does not eliminate the requirement of estate taxes at the federal level. Read on to understand how federal estate tax laws work in Nevada.
Federal Estate Tax in Nevada
Federal estate taxes are payable to the federal government. This tax targets the estates of high-net-worth individuals by setting a monetary threshold of qualification that is updated periodically. Estates valued above the said threshold must pay the federal estate tax regardless of whether or not the state where the assets are located collects estate or inheritance taxes. Conversely, those valued below the threshold qualify for a federal estate tax exemption and do not need to pay federal estate taxes.
As of 2023, the qualifying threshold for federal estate taxes is $12.92 million for individuals and $25.84 million for married couples. If your estate is valued above the relevant amount, it will be charged for federal estate tax even though most of your assets may be in Nevada.
Is There a Way To Avoid Paying Federal Estate Taxes in Nevada?
If your entire estate is valued above the federal estate tax threshold, some estate planning techniques could help you avoid federal estate taxes legally. These strategies primarily help to reduce your estate’s overall value to help you qualify for the federal estate tax exemption.
As an additional advantage, some of these techniques help to facilitate a seamless transfer of some of your assets to your intended beneficiaries, which could help them avoid the lengthy Probate Resolution Process under Nevada probate law when you are no longer around. They include the following:
You can reduce the size of your estate by giving out assets that you may have left in a will as gifts to the intended beneficiaries. However, you must be strategic with this approach because although Nevada does not tax gifts, the federal government does. Federal gift tax is payable for every gift you give unless the gift or its value is exempted under federal law.
For instance, each year, the Internal Revenue Service (IRS), responsible for collecting federal taxes, publishes an annual exclusion list for gift taxes each year. The list contains figures or thresholds that help to determine when gift tax is payable for each gift a person gives. Giving an individual a gift or collection of gifts valued above the threshold ($17000 for 2023) in a year means you must pay a gift tax. But gifts valued below the given figure are exempt from taxation.
So, every year, you can give parts of your estate as gifts to your beneficiaries, provided that the total value of the gifts given to each beneficiary does not exceed the exclusion list amount for the year. Doing this over a period will reduce the value of your taxable estate while making it easier for your beneficiaries to assume ownership of your assets.
A trust is a legal instrument that allows you to transfer your assets to another for the benefit of your beneficiaries.
Nevada has different types of trusts, some of which allow you to retain control of the trust assets during your lifetime. Regardless of which one you choose, the critical point here is that once you transfer your assets, they are no longer counted as a part of your estate and would no longer be subject to the federal estate tax.
There are several other options that could help you bypass federal estate tax laws legally. Contact a skilled estate planning lawyer to share your concerns about estate or inheritance tax so they can help you determine the appropriate strategy for your unique situation.
Get Help With Your Estate Planning Needs at the Wood Law Group
Although individuals do not need to pay taxes when they inherit assets under Nevada law, their inheritance may still be subject to federal estate tax and the inheritance tax laws in other states, depending on the value of the assets and their location. But you can manage the situation and adopt strategies that help to avoid or minimize the payment of death tax with proper estate planning if you intend to leave assets to your loved ones or beneficiaries.
The experienced estate planning attorneys at Wood Law Group can help you achieve this goal and ensure that your beneficiaries can enjoy your gifts without stress.
So, if you have further questions about wills, taxes, and estate planning or need help identifying who can Serve as Executor of your will, do not hesitate to contact us. Let us help you secure your assets for the future benefit of your loved ones.