The only certainties in life after death and taxes. Fortunately, you can plan for both, to save time and money. A deceased person’s assets could be subject to estate taxes and/or inheritance taxes, depending on where they lived and how much they were worth.
Federal Estate Tax: This is a tax levied by the United States federal government on estates when you die and pass on your assets to heirs. This tax is assessed by the overall gross value of a person’s estate. If your estate has a high enough value after you pass away, then you will have to pay estate taxes on anything you are looking to pass on. Luckily, most estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more. Also, between married persons, you can also borrow one another’s unused exemption, if you make a timely election. This process is known as ‘portability’ and must be done very carefully, to ensure maximum tax savings.
Inheritance Tax: This is a tax levied on assets and property certain beneficiaries have inherited from someone who has died. This is not the same as an estate tax because an estate tax is assessed on the estate itself before its assets are distributed whereas an inheritance tax is imposed on a beneficiary when they receive assets. In most states, the relationship of the beneficiary to the person who died determines if inheritance tax is owed or not.
- Inheritance Tax in Iowa.Iowa’s max inheritance tax rate is 15%. Iowa’s inheritance tax does not apply if the estate is valued at $25,000 or less. Importantly, the following are completely exempt from Iowa’s inheritance tax:
- Children (biological and legally adopted), Stepchildren, Grandchildren, and Great Grandchildren
- Parents, Grandparents, and Great Grandparents
- Life insurance with named beneficiaries
- Annuities purchased under a retirement or employee pension plan
- Assets left to charitable, religious, and educational organizations
Yes, this does mean that any gift to your girlfriend, boyfriend, partner, sister, brother, aunt, uncle, and other similar persons WILL result in inheritance tax in Iowa.
- Inheritance Tax in Nebraska.Nebraska’s max inheritance tax rate is 18%. Nebraska’s inheritance tax does not apply if your property goes to your spouse.
- If it goes to you parents, grandparents, siblings, children, or a lineal decedent (or their spouse) then the tax is applied to anything over $40,000 at a rate of 1%
- If it goes to an aunt, uncle, niece, nephew, or any lineal decedent of these people (or their spouse) then the tax applies to any property over $15,000 at a rate of 13%
- For any person or organization that doesn’t fall within these categories, the tax is applied to all property of more than $10,000 at a rate of 18%.