 | Tim J. Larson, J.D.,
J.D., is a native Kansan and has maintained a private practice of law in Kansas since his graduation from the Washburn University School of Law in 1982. Mr. Larson is a member of the Wichita Estate Planning Council, the National Academy of Elder Law Attorneys, and is also one of 15 select members of e.Planners, Inc., a non-profit estate planning educational organization whose members are attorneys from across the country. Mr. Larson is a partner in the firm, Larson, Schainost, & McCafferty, LLC, which has offices in Wichita at 7570 W. 21st, Building 1026, Suite C, (phone: 729-0100). |
Legal
2002-09-01 09:27:00
Inheriting property?
Tim Larson
Question: I am going to inherit some property. What taxes do I have to pay?Answer: There may not be any tax due. However, whether or not any taxes are due depends on several different factors, such as the amount you are going to inherit and whether or not the person who died was a resident of the state of Kansas or owned property in Kansas. Further, there are different kinds of potential taxes and rules that set forth what source the taxes are paid from. Sometimes a tax may be due, but is paid from a source other than what you are receiving. In addition to potential income tax, there are two types of "death" taxes. The first, "estate" tax, is determined based upon the value of the entire estate of the decedent and is based primarily on the federal estate tax system. Kansas law provides for an "estate" tax in this fashion:A tax is hereby imposed on the estate of every resident decedent (person who died a resident of the state of Kansas), and every nonresident decedent, who died holding an interest in property with a Kansas tax situs, whose estate is required by federal law to file a return for federal estate taxes. (For the most part, this only includes an estate greater than one million dollars.) The amount of such tax shall be equal to the amount of the maximum credit allowable by section 2011 of the internal revenue code against the tax imposed on the transfer of the estate of the decedent by section 2001 of the internal revenue code. Because there is a credit against the federal estate tax for the amount that is paid to the state of Kansas, the Kansas estate tax is not in addition to the federal estate tax, but is deducted from the federal estate tax. What this means is if there is tax due under the federal estate tax, a portion of that amount will be paid to the state of Kansas and it will be determined by looking at section 2011 of the internal revenue code, which determines the amount of the maximum available credit. In essence, if tax is due, there will be two checks, one to the Kansas Department of Revenue and one to the IRS.The second type of "death" tax is usually referred to as an "inheritance" tax. This type of "death" tax is imposed based upon what an individual beneficiary is inheriting and the rate is determined based upon the beneficiary's relationship to the decedent. Kansas has a system of inheritance tax for many years, however Kansas Inheritance Tax was repealed in 1998. The 2002 Kansas legislature has re-imposed the inheritance tax in part.The new law adopted by the 2002 Kansas legislature reads as follows:In addition to the tax imposed by the Kansas Estate Tax Act, a tax is hereby imposed on the privilege of succeeding to the ownership of any property . . . within the jurisdiction of this state by any relative, or stranger in the blood, of a decedent other than the spouse, brothers and sisters, lineal ancestors, lineal descendants, step-parents, step-children, adopted children, lineal descendants of any adopted child or step-child, the spouse or surviving spouse of a son or daughter, or the spouse or surviving spouse of an adopted child or step-child or the lineal descendant of an adopted child or step-child of the decedent. In the case of an adopted child or stepchild, or spouse or surviving spouse of an adopted child or stepchild or the lineal descendant of an adopted child or stepchild of the decedent, such person shall file with the department of revenue an affidavit setting forth the relationship of such person to the decedent. The persons most likely affected by this tax will be those not part of the decedent's immediate family, such as friends, nieces and nephews. For these beneficiaries, on amounts up to $100,000 the rate of tax is 10%. From $100,000 to $200,000 the tax rate is 12%. On all sums in excess of $200,000, the rate of tax is 15%. This inheritance tax is in addition to any estate tax that is owed.Other potential taxes include Generation Skipping Tax (if property by-passes a generation) and income tax on assets for which there is "income in respect of a decedent." In the event you inherit some asset for which income tax has never been recognized, such as inheriting some EE bonds or an IRA for which the income tax has not been paid, when the funds come out of the bond or IRA to you, you will owe income tax. This is completely separate and distinct from the "death" taxes discussed earlier. There is no easy answer to such a question without knowing the specific facts, and I suggest that you consult with an accountant or attorney regarding your specific situation.
