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If you have been gifted some property or money in Iowa, you will likely want to maximize your profitability on it. In this article, we answer the question: How do I avoid inheritance tax? We explain:

  • What is an inheritance tax?
  • Who Does the Inheritance Tax Apply To?

Although Iowa does not collect estate taxes on a decedent’s estate, Iowa is one of only seven states that has an inheritance tax. However, there are several exemptions or differences based on how closely you were related to the decedent.  

What is an Inheritance Tax?

When a person dies, they may make arrangements to have their belongings left to whomever they please. They may accomplish this through a living will or another instrument. For more on estate planning instruments check out Executing a Valid Will and Other Estate Planning Document. An inheritance tax is a tax only imposed on those who have received money or property from a decedent. Anything payable to the estate does not count, but anything payable to a beneficiary, such as a life insurance policy, is subject to the tax. In order to apply, the “net estate” must first be worth at least $25,000. Then, exemptions begin based on the relationship between the beneficiary and decedent.  

Who Does the Inheritance Tax Apply To?

If the net estate of the decedent, meaning the difference between what the decedent owned and what they owed, is less than $25,000, no inheritance tax is required. The estate includes all real estate and tangible personal property in which the decedent had an interest at the time or death. If the decedent was a resident of Iowa, it also includes all intangible personal property.  

Similarly, if you, the beneficiary, are the decedent’s spouse, a linear ancestor or an exempt organization, no inheritance tax return is required. For more information on exempt beneficiaries, check out Iowa Inheritance Tax Law Explained. If instead you are a sibling or other non-linear ancestor, then you are subject to pay an inheritance tax on your portion. The rate is determined by the amount of the inheritance received and range from anywhere between 5% and 15%. For more on beneficiary designation visit this article.

If you wish to avoid an inheritance tax, you can ensure that the net estate is valued at less than $25,000. Alternatively, or in addition, you can ensure that the beneficiaries all fall within one of the exempt categories.

If you have questions or concerns about your estate planning, it is advisable to speak with an experienced probate attorney. Give the attorneys at O’Flaherty Law a call today at (630) 324-6666 or schedule consultation. You can also fill out our confidential contact form and we will get back to you shortly.

Disclaimer: The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.

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