An inheritance tax is one method states use to tax the transfer of wealth. Not to be confused with an estate tax, which is payable from the estate of the deceased, an inheritance tax is paid by a person who inherits from the deceased. For anyone who has received or is anticipating an inheritance, following is a short guide to West Virginia inheritance tax.
No West Virginia Inheritance Tax but . . .
Is there an inheritance tax in West Virginia? Like most states, there is no West Virginia inheritance tax. That means if you inherit property, either real property, personal property, or intangible property like financial accounts or cash, you will not have to pay an inheritance tax in WV West Virginia inheritance tax on the value of the inherited property. Nor is there a West Virginia estate tax, which, again, would be charged to the estate of the deceased.
Prior to 2005, West Virginia, like many other states, did impose a state estate tax. The tax was sometimes called a "pick-up tax" or "sponge tax" because it was equal to part of the total federal estate tax. The effect was to divert some of the federal estate tax to the state without increasing the estate's overall tax bill. The Economic Growth and Tax Relief Reconciliation Act of 2001 phased out the pick-up tax in 2005. West Virginia and a majority of other states took no legislative action in response to the phase-out. As a result, West Virginia no longer imposes a state estate tax.
Although there is no WV inheritance tax, that does not mean that you might not be subject to an inheritance tax from another state. If you inherit property of any kind from a decedent who was a resident of another state, you might receive an inheritance tax bill from the state where the decedent lived. However, very few states impose an inheritance tax.
"No" Federal Inheritance and Estate Taxes
There is also no federal inheritance tax, but there is a federal estate tax. Again, the estate tax is paid by the estate, not by those who inherit from the estate. However, federal estate tax is owed by only those with very large estates. This means that there is no estate tax against the majority of estates, and Congress has continually raised the threshold over recent years.
For example, in 2000, estates worth less than $6,750,000 at the decedent's time of death were not subject to a federal estate tax. By 2010, Congress raised that exemption threshold to $5,000,000, and as of 2017, the threshold rose to $5,490,000. And married couples may each claim the exemption, effectively shielding almost $11,000,000 from federal estate tax.
Given the high threshold for the imposition of federal estate taxes, the majority of estates will not be subject to the federal estate tax.
Federal Gift Tax, Another Kind of Estate Tax
One other type of federal "death tax" exists: the gift tax. Many use gifts of cash or other valuables as a way to transfer wealth without incurring or running the risk of incurring a federal estate tax. Donors of a gift must pay a tax based on the value of the gift. But, again, Congress has set a high threshold to be met before a gift would be subject to a gift tax. Currently, each individual may exempt from the gift tax up to $14,000,000 of gifts. Again, this effectively means there is no federal gift tax imposed on the majority of Americans.
The loss of a loved one is painful, but navigating the tax implications of transferring or inheriting an estate need not be your burden alone. If you are considering your estate plan, or have recently received an inheritance, and need more information, contact me, Anna M. Price, at Jenkins Fenstermaker, PLLC by calling (866) 617-4736 or by completing our firm's Contact form. I would be happy to help you manage the tax issues presented by an inheritance.