If you’re a beneficiary of a bank account, investment account, or other property, you may need to obtain an inheritance tax waiver before you receive your inheritance.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
What is an inheritance tax waiver?
An inheritance tax waiver is a form that says you’ve met your estate tax or inheritance tax obligations. It’s usually issued by a state tax authority.
In order to make sure you pay any estate or inheritance taxes, the bank or other institution holding assets you’re set to inherit won’t release the assets to you until they receive the waiver. This is generally required by law.
Unlike a disclaimer of assets, an inheritance tax waiver does not waive your right to receive your inheritance. The only thing the waiver does is say that the state tax authority is releasing the hold on your inheritance.
When do you need an inheritance tax waiver?
The most common situation where you need an inheritance tax waiver is if you’re named as a Payable on Death beneficiary on a bank account or an investment account.
The Payable on Death designation means that that account passes directly to you without going through the probate process. However, estate or inheritance taxes can still apply.
The waiver ensures that you report the account if required since the probate court may not be aware of it.
(The probate court often won’t close an estate before receiving an estate tax closing letter. The waiver effectively replaces the closing letter.)
In some states, an executor of an estate may also need to get an estate tax waiver before a bank will release funds to the estate. This ensures that funds are held back for estate taxes.
How do you get an inheritance tax waiver?
The process for getting an inheritance tax waiver depends on the state. You usually need to contact the department that collects inheritance taxes.
In some states, you may need to file an inheritance tax return and/or pay inheritance taxes before you can receive a waiver.
Others will give you a waiver before you file your inheritance tax return. When you request the waiver, you have to provide the account information and balance. This allows the state to track whether you pay the required inheritance taxes.
What do you do if a bank wrongly asks for an inheritance tax waiver?
It’s common for banks to say you have to give them an inheritance tax waiver when you don’t. Here are some common situations:
- You’re an estate executor and your state doesn’t require waivers for executors.
- Your state authorizes a release of part of the account without a waiver (to pay taxes, other estate administration expenses, or immediate personal expenses).
- You don’t have an inheritance tax obligation and can self-certify or obtain a different form.
Banks that refuse to release funds by imposing requirements that aren’t in the law may be breaking the law. You should first speak to a bank manager to find out if you’re dealing with an employee who doesn’t understand the policy or a bad bank policy.
If necessary, you may need to file a complaint with the Consumer Financial Protection Bureau, National Credit Union Administration, or state regulatory agency. If you have an estate attorney, you can also ask your attorney to send the bank a letter, threaten legal action, or file a lawsuit if needed.