Adam Doll

Hopkins & Huebner

Adel Office

Federal Estate Tax and Iowa Inheritance Tax

"In this world nothing can be said to be certain except death and taxes." Benjamin Franklin wrote these words back in 1817, and they still ring true today. When an Iowan passes away, two taxes that must be considered are the federal estate tax and the Iowa inheritance tax. These are sometimes referred to as "death taxes."

The federal estate tax is determined upon the size of the deceased person's estate. Fortunately, the federal estate tax will not affect most of us. For 2016, there is a $5.45 million exemption in place that essentially makes most estates tax-free on the federal level. In other words, a person can die owning up to $5.45 million in assets, and no estate tax is due. However, for larger estates, planning becomes very important, as the federal rate is up to 40%. This exemption is currently indexed to an inflation rate, so it does fluctuate.

The other tax upon death is the Iowa inheritance tax. This is a state tax assessed upon the death of a person, but based on the relationship of the recipient of the gift to the decedent. Spouses and both lineal ascendants and decendants will receive gifts from an estate tax-free on the state level. However, gifts to brothers, sisters, friends, nieces, nephews, cousins, aunts or uncles would all result in inheritance tax being owed by the recipient. Iowa inheritance tax rates can be up to 15%, making this a significant levy.

Until Ponce de León's successor discovers the Fountain of Youth, there is no way around the certainty of death, but the good news is that there are steps that can be taken to minimize the effects of these so-called "death taxes." Gifting strategies, structuring of assets, and the use of irrevocable trusts can all play a part in lessening any taxes that may be owed at death. Without proper estate planning prior to death, more of your estate than you desire may end up going to the federal and state tax coffers. The knowledgeable estate planning attorneys at Hopkins & Huebner can be of great assistance in limiting or completely avoiding these "death taxes."

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