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How to avoid Nebraska's insurance inheritance taxes

Nebraska doesn't have an estate tax. However, that doesn't mean that the state is a cheap place to die.

Nebraska still imposes an inheritance tax on money and property inherited through an estate, which can end up costing your heirs a small fortune -- which they might not be able to afford.

How concerned should you be?

That answer mostly depends on your relationship with the deceased and what you have to inherit (or pass on).

For example, if you are the wife or husband of the deceased, you're entitled to inherit everything without worrying about the inheritance tax.

Immediate relatives (parents, children, siblings) can only inherit cash or valuables worth up to $40,000 before the inheritance tax kicks in. However, since the inheritance tax is only 1 percent of the inheritance over the $40,000 limit, it's generally going to be affordable for most people.

The waters get a lot murkier for extended family. Distant relatives like aunts and uncles only have a $15,00 exemption before a whopping 13 percent inheritance tax kicks in. That means that if you leave your $200,000 home to your favorite nephew and only close relative, he is going to have to come up with a considerable amount of cash to cover the inheritance tax -- or sell the property to cover it.

If your beneficiary is a business partner or some other third party you aren't directly related to, like a close friend, you again get hit with massive inheritance taxes: 18 percent on anything over $10,000.

There are some ways around the issue, depending on what your heirs stand to inherit. If it's mostly insurance money, it can be paid directly to your heirs without taxation. If the money is paid to the estate to be divided, however, those heirs will be taxed according to their relationship with you.

If you have significant other holdings and assets beyond insurance, talk to your estate planner about ways to reduce your inheritance taxes in order to keep your hard-earned money in your family and out of the government's coffers. There are ways, but they're difficult to manage without the advice of a good probate attorney.

Source: www.cfra.org, "Nebraska Inheritance Tax," accessed June 30, 2017

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