There are two kinds of death taxes: federal and state. At the federal level, your estate will not have to pay death taxes unless you are a multimillionaire. The number goes up every year. For 2025, it is over $14M. If you die having MORE than $14M, your estate will pay some very heavy taxes on the amount above the $14M, except that you can give the extra to your spouse and avoid the tax. Maybe you kick the can down the road until your spouse dies. It depends on how experienced your spouse’s estate planning attorney is and how much is left at his/her death.
Also, you can give any person $19,000 in 2025 without using up any of that $14M exemption. Neither the giver nor the receiver pays tax on it. You can do this for as many people as you like. So, if you are in danger of bumping into the $14M limit, dishing out $19,000 each to your three kids, eight grandkids, 24 nieces and nephews, and seven kids who belong to friends that will share their “good” wine with you, will remove $798,000 out of your estate in just one year. Rinse and repeat each year. The tax problem is solved.
The other death tax is called state inheritance tax. Iowa inheritance tax has been calculated using two factors: 1) how the beneficiary was related to the decedent and 2) how much money that person received. There has been no inheritance tax at all on lineal ascendents and descendants. But there has been a tax imposed on everyone else who is a beneficiary, until now.
Starting with deaths on and after January 1, 2025, there is no more Iowa inheritance tax, regardless of how the beneficiary was related to the decedent. However, for those who died before then, a tax would still be imposed on siblings, nieces and nephews, cousins, friends, significant others, etc. The trigger is the date of death, not the date the probate estate is opened. Tax is owed whether there is a need for probate or not.
If you think you will be subject to inheritance tax, make sure to find out from the attorney whether you will need to pay it out of the money that is distributed to you or if it will have already been paid and you have just been given the remainder. It is not fun to get and spend your inheritance and THEN get the tax bill.
