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Iowa Inheritance Tax And The In-Laws

March 9, 2015

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Iowa’s inheritance tax is not a new phenomenon.  The tax has been around in some form since 1896.  Iowa inheritance tax applies to estates where the decedent resided in Iowa at the time of death or had property located in the state of Iowa.  For many people, inheritance tax is not a significant consideration in estate planning due to changes in the law which occurred in 1997.  In Iowa, if you leave your estate to lineal ascendants (parents or grandparents) or descendants (children or grandchildren, and on down the line)—no inheritance tax is imposed in the bequest.

Where estate planners still run into inheritance tax is when a will makes a bequest to someone who is not a lineal descendant.  When Iowa law was changed in 1997 to exempt lineal ascendants and descendants, the tax remained in effect for people who did not have a lineal blood relationship with the decedent.  This includes sons- and daughters-in-law.  If a person makes a bequest in a will or trust that includes sons- and daughters-in-law, the bequest will be subject to Iowa inheritance tax.

Sometimes we will have a client who wants to include a son-in-law or daughter-in-law in their will, either because their son or daughter predeceased the in-law, or as an alternative in the event that the son or daughter dies before the person writing the will.  As estate planners, our job isn’t to dissuade the client from making such a bequest, but to point out the consequences of that bequest.  The inheritance tax consequence of a gift to an in-law starts at 5% of the share, and gradually increases to 10% of the share on bequests with a value in excess of $150,000.00.  On a bequest of $25,000.00, the amount of inheritance tax due to the state of Iowa is $1,375.00.

While that isn’t a punitive amount, it does divert a portion of the bequest from its intended recipient to the Iowa Department of Revenue.  Some clients, when made aware of this tax consequence, will choose to forego a bequest to the son- or daughter-in-law in favor of passing the bequest down to the next generation of lineal descendants.

This blog post is authored by Joel Vos and meant for informational purposes only.  It is not meant to provide legal advice in any particular circumstance or factual situation.  You should consult with an attorney prior to taking any action regarding the information contained herein.  

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