IN THEIR SHOES

Inheritance taxes are paid not by the estate, but by the people who actually inherit the money. How much they pay is determined not only by how much they inherit, but by their relationship to the person who has died as well.
For instance, if you lived in Connecticut and died, leaving $25,000 to your child, that’s fine. Your child would not owe any inheritance tax. But leave $25,000 to a devoted lifelong friend, and suddenly there’s inheritance tax: 9 percent. I always tell people who live in Connecticut (or Nebraska, for that matter, where that same $25,000 would cost your child 1 percent and your friend 15 percent) that if you want to leave a modest amount to a friend, and if you have kids whom you trust, leave it to your kids and have them gift it to your friend at the rate of $10,000 a year to save that 9 or 15 percent. Anyone can give $10,000 a year to anyone else gift-tax-free, year in and year out.*