The death of a parent or other relative is never cause for jubilation. But when an older relation has been thoughtful enough to include you in his will, a sense of gratitude may arise. The Internal Revenue Code does not require every heir to pay taxes on his legacy. But larger inheritances -- those in amounts greater than $3.5 million as of tax year 2010 -- will face taxation issues. An accountant or attorney who specializes in estate taxation is a must, as she should be intimately familiar with current federal tax law.
Find out the fair market value of the gross estate by adding together the value of cash, bank or investment accounts, real estate, stocks, bonds or insurance.
Add up adjustments to the estate, such as probate or administrative fees, or the amount that remains to be paid on a mortgage.
Subtract the amount of the adjustments from the gross estate figure. The resulting number is the net estate value.
Examine the estate or inheritance tax table published by the IRS. If the "Tax Exclusion" amount does not exceed the net value of the estate, you do not owe any tax. If the net estate value is greater than the exclusion amount, you are entitled, as of 2010, to a tax credit of $1,455,800. You have to pay tax on what remains of the net estate value after you deduct the tax credit.
Consult the IRS income tax table to see how much tax is due. In addition, get the advice of an estate tax attorney or accountant.
Trying to navigate the murky waters of estate taxation can be foolhardy. Get the best estate lawyer you can afford to avoid making poor decisions during your time of grief.