What is the amount of inheritance tax for the different types of beneficiaries?

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Q. What about inheritance tax for class A and class C beneficiaries? Is it a good idea to take out a life insurance policy where the beneficiary is the beneficiary so that he can use the funds to pay inheritance tax?

– Plan ahead

A. Let’s start with how the different types of beneficiaries are treated.

Class A beneficiaries include a parent, grandparent, children and grandchildren of the deceased, and stepchildren, but not stepgrandchildren.

Class A beneficiaries also include a child whose deceased, before the child’s fifteenth birthday, commenced to act as a mutually recognized parent of the child or continued to act as such for at least 10 years, said Catherine Romania, an estate planning lawyer at Witman Stadtmauer in Florham Park.

There is no inheritance tax on transfers by a deceased to Class A beneficiaries, she said.

Class C beneficiaries include siblings of the deceased, the spouse of a child of the deceased or the surviving spouse of a deceased child of the deceased, Romania said.

Category C beneficiaries pay no tax on the first $25,000 of taxable property received. On amounts over $25,000 up to $1.1 million, the tax is 11%, she said. Amounts over $1.1 million up to $1.4 million will be taxed at 13%, while amounts between $1.4 million and $1.7 million will be taxed at 14%. Any amount over $1.7 million is taxed at 16%, Romania said.

Life insurance is a popular strategy for covering inheritance taxes.

Romania has stated that life insurance is not taxable for inheritance tax purposes if paid directly to the beneficiary, including a class C beneficiary. But there is a tax if the insurance -life is paid to the estate, then the estate is divided among the Class C beneficiaries.

“Using money from one’s life insurance benefit to pay a tax liability on non-monetary bequests is an option available to a beneficiary, however, this should not be mandated by the deceased in the documents and insurance- life should not be paid to the estate in order to pay the tax, as this could result in the amount being included in the estate and increasing the tax burden,” Romania said.

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Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.comit’s weekly e-newsletter.

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