How to Decrease Tax Liability for an Inherited Property?

Inheriting property is usually a blessing… but can come with a curse. Those who inherit property from family or friends often benefit hugely from the property itself, but are also forced to deal with the complications and expenses of inherited property tax. Inheritance taxes aren't easy to calculate and usually require the assistance of a tax professional, but if you have a general idea that the total is going to be substantial, it can't hurt to look for small ways to minimize it.

Decreasing Tax Liability for Inheritance

It is not illegal to attempt to decrease your tax liability on an inheritance. Keep in mind that this is entirely separate from attempting to evade or defraud the taxes; you are not avoiding paying taxes that you must pay, but simply attempting to minimize the amount you must pay. There's a significant difference.

• One easy way to decrease liability on an inheritance needs to be taken advantage of by the person who is passing on the inheritance, not the one who receives it. If you're trying to reduce the liability for your heirs, you should consider forming a trust. The trust system works instead of a will or typical inheritance, and is a legal proceeding that holds property "in trust" for heirs until they reach a certain age or other milestone specified in the trust. At that time, the inheritance is passed to them. This type of inheritance does not fall under the same taxes as the same property would if put through a will.
• If you're not the one creating the inheritance, but are the one receiving it, you still have the power to reduce some of the tax liability upon it. Consider starting a company or a small business of which you are the owner. In this scenario, you must use some of the property you receive via the inheritance to run the company, in which case it becomes a tax-free business expenditure. The problem here, of course, is that you're spending it rather than having it in your possession, which may ruin the point, especially if you had other plans for it. On the other hand, you may make the money back if your business is profitable.

Getting Help

Obviously inheritance taxes, and attempting to decrease them, gets you into some complicated scenarios. The details of handling money in this manner and attempting to navigate the complex world of the IRS rules and regulations can get dense and difficult very quickly. Your best bet is to work with a lawyer you trust and get some guidance and advice.