Inheritance Myths Debunked

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4:15videos where someone is basically saying, if you inherit money, the IRS is going to take all of it, and then you're going to owe more money than you actually get and then you'll go broke and end up living in the gutter and die or something really crazy and scary. It is actually unhinged and wrong. Listen, getting money is awesome. It is a privilege. In the case of inheritance, it can be sad, for sure, but from a financial perspective, more money is not a bad thing, but there is a lot of misinformation out there. So today, I am going to clear it up. I'm going to talk about the gift tax, the estate tax, inheritance tax, and most importantly, how to work the system legally so the IRS doesn't end up taking a bigger slice of the pie than they actually have to. I'm going to walk you through exactly what these taxes are, how they get triggered, and the very real, very legal keyword. They are strategies that people use to reduce or eliminate them altogether. The first myth I want to completely dispel is that these tax laws impact everyone. You're going to see this as I talk through it, but these taxes kick in at pretty big numbers. That's why I said it's a privilege. This is a more money, more problems type of issue,

5:18for sure. This will become more clear as I go on, so let's just get right into it. I'm going to start with the gift tax. Here's the big picture. The gift tax is a federal tax that gets applied if a gift of money or property exceeds a certain dollar amount. So what does that mean? The IRS is not out here taxing your birthday present. For 2026, the annual gift tax exemption is $19,000 per recipient. That means you can give 19 grand per person per year without paying any gift tax or even reporting it to the IRS. This commonly comes up around weddings. Let's say your mom is giving you a $20,000 cash gift as a wedding present. First, ask her to adopt me. Second, she should know that she's going to get hit with the gift tax. And the person giving the gift is typically responsible for paying the tax. So in this example, this would be your mom dealing with the IRS. More on what that actually looks like in a bit, but for now, let's really dig into the nuts and bolts of when this applies. This gift exclusion is per recipient. So if your mom wants to gift $19,000 to you and each of your three siblings this year, she's good, no tax, no paperwork. This is one of

6:23those financial moves that have special rules for couples as well. So if you're married, you and your spouse can each give $19,000 to the same person, which bumps it up to $38,000 per recipient before the gift tax kicks in. That's what's called gift splitting. And it is completely legal. Now, let's say you have a rich grandma. Let's say she gave you $50,000 in 2026, maybe to help with the house down payment. She's now gone over the $19,000 exclusion. Does that mean she owes taxes? Not necessarily. That's when the lifetime gift in a state tax exemption kicks in. I told you that I'd circle back to what that actually looks like. And here it is. The IRS understands that there are some super rich people out there. Those people that are going to be giving big cash gifts here and there. That's why there is a second bucket called the lifetime exemption. In 2026, the lifetime gift and a state tax exemption is $15 million per person. That is up from around $13.99

7:25million in 2025. Yes, that is the real number. So 14 million, it is 13.99. Anyway, as of this year, you can now give away up to $15 million during your lifetime or at death without owing federal taxes on it. Now, back to that 50 grand from grandma. The first $19,000 is excluded under the annual limit. The remaining $31,000 chips away at grandma's $15 million lifetime exemption. She has to file IRS Form 709, the gift tax return and tell the IRS, hey, I gave a big cash gift, but I'm applying it to my lifetime exemption. No tax bill just yet. She is still in a safe zone. Now, let's take a pause here and come back down to earth. Most people are not giving away millions of dollars. So for the average person, gift tax is probably not something you're going to have to worry about unless you're writing six figure checks just for funsies. But on money rehab, we are working on your net worth. So this is something that you should definitely keep in mind, even if you are not a multi-millionaire

8:29yet. But if you are dealing with generational wealth or planning to pass on a significant estate, this next part is where it gets real. It's time to talk about inheritance tax and estate tax, and yes, they are different. The estate tax is a federal tax on the transfer of assets when somebody dies. It's paid out of the deceased person's estate before the money goes to the airs. On the other hand, the inheritance tax is a state tax, not to be confused with a state, but a state tax that some states charge the person receiving the inheritance. The beneficiary. I know. I know so many taxes. But just to sum it up, the estate tax is federal and it's taken from the estate of the person who died. The inheritance tax is a charge that some states slap on the beneficiary. Here's the good news. There is no federal inheritance tax. But as of 2026, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance taxes. So if grandma lived in Jersey and she left you 500 grand, New Jersey might want it's cut,

9:34even though the IRS doesn't. Okay, so now that we know the stakes, let's talk about what rich people do to legally minimize gift and estate taxes. So let's say you're doing some estate planning with that rich grandma that you have and her estate is worth more than $15 million and you are the sole beneficiary. First of all, tell grandma, I say congrats because obviously she listened to money rehab because of estate taxes. Anything you inherit over $15 million is subject to a 40% tax rate. You do not need to love math to know that 40% is a lot. So how does super rich people avoid shelling out 40% of their inheritances? Well, through some vehicles that I've already talked about on the show, like irrevocable trusts, for example. An irrevocable trust is a legal entity that holds assets outside of your estate. Once you put assets in the trust, they are no longer yours, they technically belong to the trust. Because the assets are out of your estate, they don't count toward estate taxes when you die. Yes, they are complex and yes, you need a lawyer. But if you're

10:37a multimillionaire, they can pay for themselves. Another vehicle that I've talked about on the show before is family limited partnerships or FLPs. This one is for people who own businesses, real estate, or other high value assets. With a family limited partnership, you transfer your assets to the FLP, then gift shares of the FLP to your errors. Because those shares are non-controlling and illiquid, the IRS lets you discount their value sometimes by up to 30%. So you're able to move more wealth while technically reporting less value. This is a favorite among wealthy families looking to keep control of assets while reducing estate taxes. If you're interested in learning more about either of those, I did a whole episode about tax loopholes for rich people that I have linked in the show note. I know all this gift and estate tax stuff might make it sound like the IRS is out there to get you. It is not personal. But the IRS is also not going to help you protect your wealth. That is personal, that is on you. Gift and estate taxes can be confusing for sure,

11:42but they're also full of opportunities. The tax code is built with strategies that let you pass on your wealth as long as you plan ahead. So take advantage. Whether you're the one giving the gift or receiving it, remember knowledge is power. And in this case, knowledge is money. For today's tip, you can take straight to the bank. If your parents don't have $15 million, you might not feel like you need to talk to them about a state planning, but you do. Because even if you won't have to deal with estate taxes, if their documents aren't in order, you might have to deal with probate for whatever you do inherit. And that will eat away at your inheritance, just like taxes would. So ask your parents if they have a designated Todd or pod transfer on death or payable on death beneficiaries on their bank accounts, brokerage accounts, and even some savings bonds. This is a super simple forum that they can fill out often online that bypasses probate entirely, meaning that money goes directly to you without court involvement delays or legal fees. And unlike trusts,

12:43Todd's and pods are free to set up and do not require a lawyer. This is one of those quiet, powerful steps that can save your family thousands of dollars and a whole lot of heartache and headache later on.