Tuesday, October 31, 2006

"Death Taxes" in Iowa

As the only things in life that unavoidable are death and taxes, what better way to produce tax revenue than to tax someone at their death? While there are no such thing as "death taxes" (that term is a political term conjured up by politicians), there are some potential taxes that may be paid shortly after a person's death. In short, there are two "death" taxing systems for Iowa residents: the state imposed Iowa Inheritance tax and federal imposed estate tax.

The Iowa inheritance tax is actually a tax assessed against the person receiving an inheritance (and not the estate of the deceased person) and is based on their relationship to the decedent and the amount they receive. Spouses and lineal descendants and ascendants (children, grandchildren, parents, etc.) receive their inheritances 100% inheritance tax free. Inheritances by siblings, friends, cousins, nephews, etc. would have to pay inheritance taxes. Proper planning by a knowledgeable estate planner will provide who actually pays those taxes and whose shares are reduced by those inheritance taxes.

The federal estate tax is a tax that is imposed on the estate of a deceased person. Any portion that passes to a surviving spouse or a charity are fully deductible. All other assets that pass to others are taxable if the total taxable estate exceeds $2 million. Life insurance, retirement plan proceeds, and all other assets owned by a decedent are included in determining whether the $2 million figure applies. Through various planning methods, you can structure a plan to optimize the transfer of assets with a limited tax bill.

This is only a basic synopsis of "death taxes". You should, of course, contact a knowledgeable estate planning attorney to review your personal situation. If you don't know one, you do now.

No comments: