Goodbye to the Iowa Inheritance Tax

By Adam Doll

Iowa’s inheritance tax is something that has been on the books for a long time, but it is now in the process of slowly fading away.  The inheritance tax is a tax that is charged to the beneficiary for the privilege of receiving assets from a deceased person.  The amount of tax to be paid is dependent upon the relationship the beneficiary has to the decedent.  In the majority of estates the inheritance tax is a moot point as there are exemptions to paying the tax if the assets go to a surviving spouse, parents, children and grandchildren.  However, if a sibling, cousin or a friend were to receive assets from the decedent’s estate there would likely be an inheritance tax owed to the Iowa Department of Revenue, which can be up to 12% of assets received.

However, just last year a law was passed by the Iowa Legislature to phase out the inheritance tax over time with the tax completely eliminated for deaths occurring in the calendar year 2025.  During this phase-out period the inheritance tax is still in effect as in the past, but for calendar year 2021 deaths, the recipient would only need to pay 80% of what would otherwise be owed (then 60% for 2022 deaths, 40% for 2023 deaths and 20% for 2024 deaths).  In the year 2025 the inheritance tax will be history.

It has been very important to understand the effect of and plan for the Iowa inheritance tax in the past, and still will be until this tax is completely phased-out.  An experienced estate planning attorney can help guide you through the estate planning process to help maximize the assets that actually get to your loved ones and minimize the amount paid to the government.