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What taxes do I need to pay on a benefactor's estate?

If you are the beneficiary of an estate or property, you need to know what the laws are regarding estate taxes. Do you have to pay an estate or inheritance tax?

It depends on the state you live in and the state your benefactor lived in when he or she died. Colorado does not have an inheritance or estate tax. However, there are some states that do. If your benefactor lived in one of those states -- even if you do not -- you may have to pay a state inheritance tax.

That will depend on your relationship to the deceased and the value of the property. If you are a surviving spouse, you shouldn't have to pay an inheritance tax. Also, some states exempt taxes for small inheritances.

What about federal taxes? The federal government only charges inheritance taxes on high-value estates. The first $5 million, which is a base amount that has risen with inflation, is exempt. Therefore, unless the deceased owned assets valued over the exemption amount, estate taxes are not owed. For those few cases where taxes are owed, the taxes are paid directly from the estate.

Therefore, if you are a beneficiary of an inheritance in Colorado, unless it is worth over $5 million, you do not owe any taxes -- state or federal -- on any property or assets inherited. If you have any questions, speak to your estate attorney. You should also speak to him or her about the federal tax returns that need to be filed on behalf of the deceased. In most cases, a federal and sometimes a state tax return are still required to be filed the year following the death of an individual.

Source: Legal Consumer, "Does Colorado Collect Estate or Inheritance Tax?" accessed Nov. 27, 2017

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