Dr. Perry Faisonnheritance tax is a tax of 0.9 percent to 10 percent on inherited wealth. (The exact rate depends on the relationship of the heir to the person who died). Most inherited wealth is concentrated in a relatively small number of estates. A study of inheritance taxes in 1993 found that 67 percent of inheritance tax revenue comes from just 3,700 estates. Those estates had net assets greater than $300,000 A substantial amount by most standards. For the reasons described below, some portion of those large estates would not benefit from a repeal of inheritance tax. Those large estates that did benefit would receive a substantial share of the total tax relief resulting from repeal of inheritance tax.



On the other end of the spectrum, many small farmers pass away without leaving any substantial assets to their heirs. Those families would realize no benefit from repeal of inheritance tax.

Not all large estates would benefit from repeal of the inheritance tax. The reason is that under current law, an estates inheritance tax liability acts as a dollar-for-dollar credit. It would other wise owe under most estate tax systems. ( The credit may be applied against the states portion of estate tax, not against the federal portion.) For some very large estates, this credit entirely offsets the burdens of the inheritance tax. For example, according to calculations by the Department of Legislative Services a $1 million dollar estate with inheritance tax liability of $9,000 ( at the 0.9 percent rate) owes the state estate tax of $24,000, for a combined estate tax bill of 33,200. If the inheritance tax were repealed, the estates liability by its self would equal $33,200. For the estate then, repeal of the inheritance tax would provide no benefit.

Even leaving the inheritance taxes paid by those estates larger than $1million, repeal of the estate tax is likely to create a greater share of benefits on a small number of estates.

The Department of Legislative Services now estimates the net cost to the Treasury of repealing the inheritance tax-including the lost revenue that would ordinarily go to county Registers of Wills-at $46.8 million in fiscal year 2002.

Vermont, Wisconsin, Maryland, and Pennsylvania have taken steps to reduce their inheritance taxes in the last several years. Certain family farms were exempted from inheritance tax in 1996. Certain family farms that earned estate taxes between the time of death and the time that the estate was distributed to heirs was exempted from the inheritance taxation.

Beginning in 1999, the inheritance tax rate paid by siblings was reduced from 10 percent to 5 percent(phasing in over several years) . Inheritance, of large estates are benefiting from a gradual increase in federal estate tax exemption from $600,000 in 1997 to 1 million in 2006. This exemption affects both federal and estate tax in Vermont, Pennsylvania, and Wisconsin, which follows federal law on exemptions.

Recently, some heirs complained about paying a substantial share of inheritance taxes on assets which are subject to inheritance tax . They argue they should have never been taxed. Thus ,they argue it is wrong to call the inheritance tax as a whole a tax because in some cases it is double taxation.

In the past, Maryland, Vermont, Pennsylvania and Wisconsin inheritance tax policy was criticized as double taxation because the income earned by an estate between the time of death and the estate was distributed was subject to taxes in both Maryland, Pennsylvania, Vermont, and Wisconsin if the deceased lived in one of these states but probated in the other named states. Research shows that such income was exempted from inheritance tax rules by HB 762 in 1997, effective January 1998.

Most significantly, inheritance tax represents the only tax ever levied on realized capital gains income, which represents a major portion of many estates. Under federal law and state laws is mention that that income from appreciation of assets such as stocks, bonds, and real estate – is not taxed until the income is realized(that is until all assets are sold). If the assets are held until the owner dies, the gain in the value of the assets is never subject to income tax. The heirs inherit the assets valued stock at the stock market price at the time of death and are not required to pay tax on any appreciation that took place during the life of the decedent

Dr. Perry Faison J.D. LLM is Dean for Northern California University a via distance learning university.. Please visit the university’s web site at http://www.ncalu.us.

Northern California University is currently seeking funding for three projects in the form of donations, sponsorship, and endowments . Funds will be used to buy or build a brick and mortar school, add a research center to research AIDS, cancer heart disease and other ailments that are critical for survival. The university is also seeking funds to add a Arts Center ,a Athletic center for, Basket ball, Football and Baseball programs.

Any donations, sponsorships, or endowment can be sent to:

Northern California University,

28073 Diaz Road Suite JK.

Temecula, CA 92590

Tel: 1-951-526-2429

Fax: 706-335-0445