We talk about taxes and fees a lot in estate planning because if you don’t have a quality plan in place your estate will likely be hit with taxes and fees to a varying degree. Actual figures depend on the gross value of your estate, what state you lived in, and what strategies you employed (such as a living revocable trust) that help to reduce or even eliminate taxes and fees.
Recently I wrote about one specific tax that only applies to states—the state estate tax. If you don’t have time to read the full post and live in Iowa, the bottom line is that generally you won’t need to worry about it. Unlike places like Minnesota and Illinois, Iowa does not have a state estate tax. However, Iowa DOES have a special “death tax” that only six states in the U.S. have.
What is an Inheritance Tax and how is Different than an Estate Tax?
At first glance the inheritance tax seems mighty similar to the estate tax (both state and federal). Indeed, both are collected after someone’s death. However, an estate tax is assessed by the overall gross value of a person’s estate. This figure totals up all assets passed to all beneficiaries, regardless of their relationship to to the decedent (the person who passed away).
Any estate taxes owed are paid out of the estate assets before beneficiaries receive their distributions. And, the estate executor is responsible for making certain any state or federal estate taxes owed are fulfilled.
The inheritance tax, instead, is a tax levied on assets and property certain beneficiaries have inherited from someone who has died. I say “certain” because in most states the relationship of the beneficiary to the person who died determines if inheritance tax is owed or not. Amount of tax owed is calculated on each eligible beneficiary’s share of the estate and the beneficiary’s relationship to the decedent.
The beneficiary subject to estate taxes is personally responsible for filing the tax. In Iowa this means filling out Form 706 and filing before the due date on the last day of ninth month after death.
The good news in light of all this tax talk is that Iowa’s inheritance tax only applies in certain situations. Not every Iowan who passes away will render their heirs subject to more taxes. For instance, Iowa’s inheritance tax does not apply if the estate is valued at $25,000 or less.
The following, among others, are exempt from Iowa’s inheritance tax:
Annuities purchased under a retirement or employee pension plan
Assets left to U.S. charitable, religious, and educational organizations
As you can see, most people won’t ever have to deal with Iowa’s inheritance tax. So, who isn’t exempt as a beneficiary? Domestic partners, friends, and non-lineal relatives such as nieces, nephews, siblings, aunts, uncles, and cousins are all subject to the inheritance tax on the assets they inherit. Assets bequest to corporations or social/fraternal organizations don’t fit the qualifications as “educational, religious, or charitable” and are therefore not exempt.
Iowa’s max inheritance tax rate is 15%. (Which is better than our neighboring state of Nebraska, which has the highest top inheritance tax rate of 18%.)
In case you were wondering, there is no federal inheritance tax to worry about.
How do I Know if my Estate or Beneficiaries will owe Taxes?
Consult with an experienced estate planner and other professional advisors so that may they thoroughly evaluate if your estate will be subject to estate or inheritance taxes. Regardless, it’s a good idea to start looking into strategies and estate planning tools to reduce the burden of (all) taxes on your beneficiaries.
One way to do that during your lifetime is to gift (cash or non-cash) assets during your lifetime. The gift tax rate is currently at $15,000. Meaning the IRS will allow you to give away up to that amount, per donee (person receiving the gift), every year, without facing a gift tax.
I also highly recommend consulting an estate planner and other related trusted professional advisors to review your estate planning goals, financial situation, and assets. There are all sorts of unique considerations people face in that demand a thorough review and thoughtful solutions.
There’s that pragmatic, and slightly depressing saying that the only sure things in life are death and taxes. But what about taxes on death? Just like you can’t escape taxes in life, they government can tax your estate at death. Indeed, it’s often referred to as the “death tax.” And, just like taxpayers file both federal and state income taxes, there are both federal and state estate taxes.
What is an Estate Tax?
When a U.S. resident dies, an estate tax may be levied against the gross estate, which includes the fair market value (FMV) of all owned property, as well as any assets the deceased had interest in (e.g. assets like life insurance). Think of it like the gross income figure you calculate for income tax returns.
Federal Estate Tax
Let’s start with federal estate taxes. Because this is a federal tax, this applies regardless of what state you die in.
For tax years 2018 through 2025, the exemption from estate, gift, and generation-skipping taxes was raised from $5.49 million per individual to an approximated $11.2 million. (Why do I say approximated? Because the exemption base is indexed, so the base for the 2017 tax year was $5 million; for the 2018 tax year, the base is now $10 million and indexed for inflation.) In plain terms, this means each individual should be able to pass over $11 million to their heirs before any estate, gift, and generation-skipping taxes apply.
If you’re married, this means your estate exemption now equals $22.4 million. (Or, you could think of it like each couple now has an additional $11.2 million in assets available to gift or make a testamentary transfer with thoughtful estate planning.)
The bottom line: if your estate is worth less than the federal exemption rates, it will be free from the estate taxes after you die. If you have an estate valued at more than the exemption threshold (and smart estate planning strategies are not appropriately implemented to shield assets from being counted in your estate’s gross value), your taxable estate will met with a tax rate of up to 40 percent.
State Estate Taxes
The caveat (and good news for residents of the majority of states) is that not all states have a state estate tax…including Iowa! Currently, 12 states and D.C. also impose an estate tax on residents. It’s important to note that the exemption rates for these state estate taxes are much lower than the federal exemption rate. For instance, our neighbors to the east in Illinois have an exemption rate of $4 million and a graduated marginal tax rate of of o.8 to 16 percent.
Note: figures may have changed since time of publication of this map.
Is there any reason an Iowan would need to account for state estate taxes in their estate planning? Only if they own real estate in another state. Let’s consider a hypothetical example to explain this better.
Alice with her Minnesota Lake House
Alice is an Iowa resident. She died in March 2018 owning a vacation home on her favorite lake in Minnesota. Alice’s gross estate totals $2.8 million. What estate taxes will Alice’s estate be responsible for?
Alice’s estate will escape federal estate taxes because her estate is less than exemption rate at $11.2 million
Alice’s estate won’t be subject to any Iowa state estate taxes because there aren’t any.
While Iowans largely escape the state estate tax, there is a state inheritance tax. The inheritance tax is different than the estate tax (although they they are often incorrectly used interchangeably). The estate tax is based purely on gross value and regardless of who inherits what; the inheritance tax is only charged against the share of inheritance of certain estate beneficiaries.
There’s a lot to note about Iowa’s inheritance tax, so I’ll do a deep dive into that here on the GoFisch blog later this week!
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/08/Screen-Shot-2018-08-14-at-12.09.28-AM.png6921055Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2018-08-13 11:12:092020-05-18 11:28:51Tax Talk: If You Die in Iowa is There a State Estate Tax?
Undoubtedly knowledge is power when it comes to understanding how different laws directly affect you. Indeed, living in a modern society mean that an interplay of laws govern pretty much every aspect of our lives in one way or another—even when it comes to death. That’s why I’m dedicated to breaking down terms (like in my “legal word of the day” series) and explaining processes (like how to form a 501(c)(3) in Iowa) related to GFLF’s core services. Because even if you’re not an attorney, that doesn’t mean you shouldn’t/can’t learn about the interplay of different laws Similarly, I think it’s important to get the word out about events in the community that can help grow knowledge on important topics like estate planning.
The Iowa State Bar Association (ISBA) announced they’re producing a seminar series called the “People’s Law School.” The first public information event will focus on three super important estate planning elements:
According to their website, the ISBA will “identify other topics of public interest and host similar seminars in the future,” so be on the look out for other upcoming opportunities to learn more about the law as a part of your life.
If you’ve dropped all the excuses and committed to making your estate plan happen, that’s great! It’s easy to get started with my free Estate Plan Questionnaire. Questions or want to discuss your estate? Don’t hesitate to contact me via email or by phone at 515-371-6077.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/08/Screen-Shot-2018-08-12-at-11.40.19-PM.png6811043Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2018-08-12 23:41:072020-05-18 11:28:51Estate Planning Event at Iowa State Bar Association
Tax Talk: Iowa’s Inheritance Tax
Estates & Estate Planning, Taxes & Finance, Wills, Trusts & EstatesWe talk about taxes and fees a lot in estate planning because if you don’t have a quality plan in place your estate will likely be hit with taxes and fees to a varying degree. Actual figures depend on the gross value of your estate, what state you lived in, and what strategies you employed (such as a living revocable trust) that help to reduce or even eliminate taxes and fees.
Recently I wrote about one specific tax that only applies to states—the state estate tax. If you don’t have time to read the full post and live in Iowa, the bottom line is that generally you won’t need to worry about it. Unlike places like Minnesota and Illinois, Iowa does not have a state estate tax. However, Iowa DOES have a special “death tax” that only six states in the U.S. have.
What is an Inheritance Tax and how is Different than an Estate Tax?
At first glance the inheritance tax seems mighty similar to the estate tax (both state and federal). Indeed, both are collected after someone’s death. However, an estate tax is assessed by the overall gross value of a person’s estate. This figure totals up all assets passed to all beneficiaries, regardless of their relationship to to the decedent (the person who passed away).
Any estate taxes owed are paid out of the estate assets before beneficiaries receive their distributions. And, the estate executor is responsible for making certain any state or federal estate taxes owed are fulfilled.
The inheritance tax, instead, is a tax levied on assets and property certain beneficiaries have inherited from someone who has died. I say “certain” because in most states the relationship of the beneficiary to the person who died determines if inheritance tax is owed or not. Amount of tax owed is calculated on each eligible beneficiary’s share of the estate and the beneficiary’s relationship to the decedent.
The beneficiary subject to estate taxes is personally responsible for filing the tax. In Iowa this means filling out Form 706 and filing before the due date on the last day of ninth month after death.
Iowa’s Inheritance Tax
The good news in light of all this tax talk is that Iowa’s inheritance tax only applies in certain situations. Not every Iowan who passes away will render their heirs subject to more taxes. For instance, Iowa’s inheritance tax does not apply if the estate is valued at $25,000 or less.
The following, among others, are exempt from Iowa’s inheritance tax:
As you can see, most people won’t ever have to deal with Iowa’s inheritance tax. So, who isn’t exempt as a beneficiary? Domestic partners, friends, and non-lineal relatives such as nieces, nephews, siblings, aunts, uncles, and cousins are all subject to the inheritance tax on the assets they inherit. Assets bequest to corporations or social/fraternal organizations don’t fit the qualifications as “educational, religious, or charitable” and are therefore not exempt.
Iowa’s max inheritance tax rate is 15%. (Which is better than our neighboring state of Nebraska, which has the highest top inheritance tax rate of 18%.)
In case you were wondering, there is no federal inheritance tax to worry about.
How do I Know if my Estate or Beneficiaries will owe Taxes?
Consult with an experienced estate planner and other professional advisors so that may they thoroughly evaluate if your estate will be subject to estate or inheritance taxes. Regardless, it’s a good idea to start looking into strategies and estate planning tools to reduce the burden of (all) taxes on your beneficiaries.
One way to do that during your lifetime is to gift (cash or non-cash) assets during your lifetime. The gift tax rate is currently at $15,000. Meaning the IRS will allow you to give away up to that amount, per donee (person receiving the gift), every year, without facing a gift tax.
I also highly recommend consulting an estate planner and other related trusted professional advisors to review your estate planning goals, financial situation, and assets. There are all sorts of unique considerations people face in that demand a thorough review and thoughtful solutions.
Have any questions or owe inheritance taxes yourself? Don’t hesitate to contact me at gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.
Tax Talk: If You Die in Iowa is There a State Estate Tax?
Estates & Estate Planning, Taxes & Finance, Wills, Trusts & EstatesThere’s that pragmatic, and slightly depressing saying that the only sure things in life are death and taxes. But what about taxes on death? Just like you can’t escape taxes in life, they government can tax your estate at death. Indeed, it’s often referred to as the “death tax.” And, just like taxpayers file both federal and state income taxes, there are both federal and state estate taxes.
What is an Estate Tax?
When a U.S. resident dies, an estate tax may be levied against the gross estate, which includes the fair market value (FMV) of all owned property, as well as any assets the deceased had interest in (e.g. assets like life insurance). Think of it like the gross income figure you calculate for income tax returns.
Federal Estate Tax
Let’s start with federal estate taxes. Because this is a federal tax, this applies regardless of what state you die in.
Not too long ago, I reviewed the Tax Cuts and Jobs Act’s (TCJA) impact on estate planning. (Why? Because smart estate planning accounts for taxes and employs strategies that minimize said taxes.) One of the most significant changes from the “new tax law” was with the estate tax exemption. This is the figure subtracted from an estate’s gross value in order to calculate federal taxes.
For tax years 2018 through 2025, the exemption from estate, gift, and generation-skipping taxes was raised from $5.49 million per individual to an approximated $11.2 million. (Why do I say approximated? Because the exemption base is indexed, so the base for the 2017 tax year was $5 million; for the 2018 tax year, the base is now $10 million and indexed for inflation.) In plain terms, this means each individual should be able to pass over $11 million to their heirs before any estate, gift, and generation-skipping taxes apply.
If you’re married, this means your estate exemption now equals $22.4 million. (Or, you could think of it like each couple now has an additional $11.2 million in assets available to gift or make a testamentary transfer with thoughtful estate planning.)
The bottom line: if your estate is worth less than the federal exemption rates, it will be free from the estate taxes after you die. If you have an estate valued at more than the exemption threshold (and smart estate planning strategies are not appropriately implemented to shield assets from being counted in your estate’s gross value), your taxable estate will met with a tax rate of up to 40 percent.
State Estate Taxes
The caveat (and good news for residents of the majority of states) is that not all states have a state estate tax…including Iowa! Currently, 12 states and D.C. also impose an estate tax on residents. It’s important to note that the exemption rates for these state estate taxes are much lower than the federal exemption rate. For instance, our neighbors to the east in Illinois have an exemption rate of $4 million and a graduated marginal tax rate of of o.8 to 16 percent.
Here’s an incredibly helpful map from Tax Foundation that illustrates this.
Note: figures may have changed since time of publication of this map.
Is there any reason an Iowan would need to account for state estate taxes in their estate planning? Only if they own real estate in another state. Let’s consider a hypothetical example to explain this better.
Alice with her Minnesota Lake House
Alice is an Iowa resident. She died in March 2018 owning a vacation home on her favorite lake in Minnesota. Alice’s gross estate totals $2.8 million. What estate taxes will Alice’s estate be responsible for?
Iowa’s Inheritance Tax
While Iowans largely escape the state estate tax, there is a state inheritance tax. The inheritance tax is different than the estate tax (although they they are often incorrectly used interchangeably). The estate tax is based purely on gross value and regardless of who inherits what; the inheritance tax is only charged against the share of inheritance of certain estate beneficiaries.
There’s a lot to note about Iowa’s inheritance tax, so I’ll do a deep dive into that here on the GoFisch blog later this week!
Questions about how taxes (and other fees) may affect your estate plan? Need to revise your current plan after changes to the tax code? Don’t hesitate to contact me via email at gordon@gordonfischerlawfirm.com or by phone (515-371-6077).
Estate Planning Event at Iowa State Bar Association
Estates & Estate Planning, Events, Powers of Attorney, Wills, Trusts & EstatesUndoubtedly knowledge is power when it comes to understanding how different laws directly affect you. Indeed, living in a modern society mean that an interplay of laws govern pretty much every aspect of our lives in one way or another—even when it comes to death. That’s why I’m dedicated to breaking down terms (like in my “legal word of the day” series) and explaining processes (like how to form a 501(c)(3) in Iowa) related to GFLF’s core services. Because even if you’re not an attorney, that doesn’t mean you shouldn’t/can’t learn about the interplay of different laws Similarly, I think it’s important to get the word out about events in the community that can help grow knowledge on important topics like estate planning.
The Iowa State Bar Association (ISBA) announced they’re producing a seminar series called the “People’s Law School.” The first public information event will focus on three super important estate planning elements:
While the seminar is being billed as one for “older Iowan issues,” I have to remind that everyone needs an estate plan! Even young professionals and definitely married couples. Definitely people with kids and people with pets! Even college students can benefit from putting a power of attorney in place. And, especially working and middle-class folks need a up-to-date estate plan.
At the seminar, attendees can have a living will or medical power of attorney form notarized at the event if they bring their completed documents.
The session will be held 5:30-7 p.m. on September 19 at the ISBA Headquarters in Des Moines. Interested? You can register online here.
According to their website, the ISBA will “identify other topics of public interest and host similar seminars in the future,” so be on the look out for other upcoming opportunities to learn more about the law as a part of your life.
If you’ve dropped all the excuses and committed to making your estate plan happen, that’s great! It’s easy to get started with my free Estate Plan Questionnaire. Questions or want to discuss your estate? Don’t hesitate to contact me via email or by phone at 515-371-6077.