Inheritance tax in Iowa
- Thread starter dmclone
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Inheritance tax returns in Iowa are filed and paid by the person inheriting the money/property. Feel free to DM or call me as I have done these a few times for some very weird situations so I feel like I have a good grasp on them.
The attorney's my clients worked with didn't do anything except get and inventory/value listing which is why they had me do the returns.
Depends. Does the Will or other document creating the transfer somehow indicate that the inheritance tax is to be paid out of the residue of the estate? What sort of assets did you "inherit"? Are you a beneficiary under a will, an intestate heir, or was it a beneficiary designation on an account or contract?
While Curt is correct about the general incidence of the tax, it isn't uncommon for the lawyers to work with the Executor or Administrator, assuming there is probate, to get the IA inheritance tax return prepared (either by them or an accountant). Often the funds will be paid either from the residue (if there is a clause to that effect) or from your share that would be distributed to you. But that's a general answer. I would suggest you contact the lawyers involved for the particulars.
I handle a lot of probates and I prepare the IA 706's myself on my estates, so also feel free to DM me if you have questions.
You already spent the $$$ on the Model Y, right?? hahahaha.
I am an estate planning attorney in Des Moines.
Some attorneys do inheritance tax returns, and some do not. I personally have done a few of these in the past month.
Many parts of the return are similar to the estate inventory for probate proceedings, so often the lawyer handling the probate proceeding (if it was intestate or will) will have the information you need.
In general, if you are not a direct child of the testator, you will owe money on the inheritance for any assets which aren’t otherwise taxed as income. **edit for clarity** Most assets are NOT considered income when inherited. Things like bank accounts, cars, real estate, etc.
However, if you’re inheriting some types of IRAs/401(k)s/403(b)s as a beneficiary, there won’t be inheritance tax, but instead it would be taxed as income for you as you take the money out over time. Depending on whether there were a few specific types of trusts put into place by the testator, this can be quite complicated from a tax perspective, and the laws changed significantly in 2019.
Most well drafted wills/trusts will explain whether the tax is to be paid by the beneficiary or the estate.
If you know the attorney handling the estate, that’s probably your best bet for who to reach out to.
As a nephew, if she died last year, it will end up as a 6% inheritance tax on the assets passed to you (other than qualified retirement plans like IRAs or 401(k)s).
I would also second the comment that suggested a revocable trust. Typically they are more expensive than wills (due to drafting costs and the amount of work with retitling assets), but if done correctly, you can avoid the probate process altogether, which can cost up to 2% of the entire value of the estate.
Some attorneys do inheritance tax returns, and some do not. I personally have done a few of these in the past month.
Many parts of the return are similar to the estate inventory for probate proceedings, so often the lawyer handling the probate proceeding (if it was intestate or will) will have the information you need.
In general, if you are not a direct child of the testator, you will owe money on the inheritance for any assets which aren’t otherwise taxed as income. **edit for clarity** Most assets are NOT considered income when inherited. Things like bank accounts, cars, real estate, etc.
However, if you’re inheriting some types of IRAs/401(k)s/403(b)s as a beneficiary, there won’t be inheritance tax, but instead it would be taxed as income for you as you take the money out over time. Depending on whether there were a few specific types of trusts put into place by the testator, this can be quite complicated from a tax perspective, and the laws changed significantly in 2019.
Most well drafted wills/trusts will explain whether the tax is to be paid by the beneficiary or the estate.
If you know the attorney handling the estate, that’s probably your best bet for who to reach out to.
As a nephew, if she died last year, it will end up as a 6% inheritance tax on the assets passed to you (other than qualified retirement plans like IRAs or 401(k)s).
I would also second the comment that suggested a revocable trust. Typically they are more expensive than wills (due to drafting costs and the amount of work with retitling assets), but if done correctly, you can avoid the probate process altogether, which can cost up to 2% of the entire value of the estate.
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I thought Iowa passed a law where they were doing away with inheritance taxes slowly over a couple of years. Maybe I am wrong on this.
This is correct. It is a five year phase out, with the current year being year 4/5. Every calendar year the tax is reduced until it reaches zero.
Tell all of your older relatives to live until Jan 1, 2025.
Revocable living trust arrangements make a lot of sense for a lot of folks. They tend to be a bit more expensive on the front end but can greatly reduce the expense of administering things after the person dies.
During portions of the pandemic in New York City, the probate courts were actually shut down. Some people were greatly inconvenienced by having to wait for them to open back up to probate the will. The beneficiaries and families of those who had set up living trust arrangements had a much less difficult time getting things handled during those periods because they didn't need access to the courts. This sort of closure never occurred in Iowa, but it was an interesting advantage that I had never considered.
Revocable trust administration tends to be more private as well--unlike with probate estates, an inventory need not be filed in a case file that is open to the public.
All that said, there are some people for whom a Will will work out fine. In Iowa, for example, if a person does not own real estate and takes care to set up beneficiary designations and how accounts are titled, he or she can also avoid probate (and at less cost than doing the Trust). There isn't a one-size-fits-all plan, and I would encourage those exploring options to consult a competent estate planning attorney. And no, this isn't a solicitation, just a suggestion.
I thought there was only a tax if the estate was valued at over 11 million for an individual and 22 million if married. Excuse my ignorance on the matter and would like to be more informed.
I received an inheritance from my grandpa last year. In the attorney letter, it said they filed the tax returns for the estate so it probably just depends how it's set up.
I believe with direct descendants - parents, grandparents - there's no tax.
That's Federal. Iowa has Inheritance Tax for non-lineal decendants.
The complex one I had to deal with was:
2 brothers who lived together on a farm. 1 brother passed away with no will so everything went to the remaining brother because he was the only direct family member.
The remaining brother then passed away 2 weeks after the first brother but he had a will leaving everything to his cousin (my client).
So we had to do one Inheritance Tax return for 1/2 the estate for the first brothers inheritance and then had to do another Inheritance tax return for the cousin for the entire amount of the estate. It was a lot of farm land mainly that had a very high value. The State got a really nice chunk of money from this situation.
I learned a lot with that scenario.
So half of it got taxed twice over the course of two weeks? That's awful
federal estate tax kicks in for estates worth just a hair under $13 million for this year. This limit can effectively be doubled by being married and having proper estate planning with certain types of trusts, or with a good CPA after death thanks to "portability."
This limit is currently artificially very high, and the law is set to sunset in 2026, at which point it will be roughly half of what it is now (but adjusted up for inflation slightly).
Iowa is one of about 1/3 of states which have some sort of state-level estate or inheritance tax. although they are similar, they technically function differently... estate taxes are a tax on the assets of the deceased, while inheritance taxes are sort of like an income tax for inheritances, because inheritances are not included in income for income tax purposes.
As I posted above, the Iowa inheritance tax is being phased out, and will disappear by Jan 1, 2025.
@isufbcurt Could i just add someone as a co-owner to all property and joint account holder to everything to avoid any taxes?
