Hi- my parents will be getting a sum of money from my dad's aunt in Scottsdale Arizona who passed away last year. They are unsure of the amount- but it should be quite a bit- possibly thousands of dollars. She lived in Arizona- we live in Illinois. My dad's tax guy said they will have to pay 34% of the amount- whatever it may be. Is this right?? I didn't know if the Arizona/Illinois tax thing was different or the same! I need an answer and make it simple please! Do they pay anything or not?? THANKS!

An inheritance tax is an assessment made on the portion of an estate received by an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed to individuals. It is strictly a state tax. Eleven states still collect an inheritance tax. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. Connecticut will be phased out after 2005. In all states, transfers of assets to a spouse are exempt from the tax. In some states, transfers to children and close relatives are also exempt.

Most states follow the IRS exemption of $2 MILLION for inheritance taxes.

That being the case, you will owe ZERO inheritance taxes.

deanastan's parents don't pay any federal tax on inheritance of any amount (without any limit) unless his parents inherit traditional IRA.
There may be some state tax on inheritance, so check at your state web site. Many states do not tax inheritances.
So find out from your dad's tax guy about how he got this 34% figure.

The $2 million exemption is for the Estate taxes of his dad's aunt. It is the estate that has to pay the estate taxes.

Agreed!