Legal Definitions - succession tax

A succession tax, also widely known as an inheritance tax, is a tax imposed on the assets or property that an individual receives from the estate of a person who has died. Unlike an estate tax, which is levied on the total value of the deceased person's estate before distribution, a succession tax is typically paid by the beneficiary (the person receiving the inheritance) on the specific portion of the estate they inherit. The tax amount can vary based on factors such as the value of the inheritance, the type of assets received, and the relationship between the deceased and the beneficiary.

• Example 1: Inheritance from a Parent

  After her father passed away, Maria inherited his investment portfolio valued at $500,000. In the state where her father resided, there is a succession tax that applies to inheritances exceeding a certain threshold, and the tax rate varies based on the relationship to the deceased. Since Maria is a direct descendant, she might qualify for a lower tax rate or a higher exemption amount. However, she is still responsible for calculating and paying the succession tax on the portion of the $500,000 that exceeds the tax-free limit to the state government.

• Example 2: Bequest to a Non-Relative

  Mr. Henderson, a generous philanthropist, left a substantial sum of $1 million to his favorite local animal shelter in his will. Because the animal shelter is not a direct family member or a spouse, the succession tax rate applied to this bequest might be significantly higher than if it were inherited by a close relative. The animal shelter, as the beneficiary, would need to pay the applicable succession tax on the $1 million before it can fully utilize the funds for its operations, thereby reducing the net amount received.

• Example 3: Inheritance of Specific Assets

  When her aunt passed away, Clara inherited a valuable collection of antique jewelry and a piece of undeveloped land. The total appraised value of these assets is $300,000. The state's succession tax laws require an assessment of these non-cash assets. Clara, as the beneficiary, must pay a succession tax based on the assessed value of the jewelry and land. This tax must be settled with the state's revenue department before the legal ownership of these specific assets can be fully transferred into her name.