Duffy Law Office (563) 445-7400 Davenport, IA

Estate and Inheritance Taxes for Iowa Residents

Dennis D. Duffy Estate Planning Attorney Davenport IA

Estate and Inheritance Taxes for Iowa Residents

Throughout your life you pay various different types of taxes. When you earn income significant taxes are due, and Americans pay many other taxes as well including taxes on We all must pay taxes on our income. We are then left with a remainder. No one suggests that there should be some type of additional tax imposed on any principal that you placed in the bank after you paid your taxes. However, your after-tax savings are indeed subject to the estate tax if they exceed a certain amount. Many people simply do not see the fairness in this. They say it is an exercise in double taxation. On New Year's Eve of 2012 the United States Senate passed a measure that would stop the country from falling over the socalled "fiscal cliff." A number of hours later on New Year's Day the House of Representatives agreed to the compromise, and this legislation was ultimately signed into law by President may be imposed on these after-tax resources as they are being passed on to your heirs in the form of the federal estate tax. Your estate is invariably going to be comprised of the assets that you have been able to retain after paying all of these taxes. While you are alive there is no justification for any additional taxes on these after-tax assets that you have been able to retain. capital gains, purchases, property taxes, etc.

However, at the time of your death there is in fact a levy that

2013 Estate Tax Parameters

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

Obama.

This measure is now officially called the American Taxpayer Relief Act of 2012.

There were some provisions contained within this act that

The American Taxpayer Relief Act of 2012 dictates a maximum 40% estate tax.

impacted the federal estate tax. Going forward the maximum rate of the tax is 40%; this represents a 5% increase over the 35% that was in place in 2011 and 2012.

In December of 2010 a now-expired tax relief act was passed that is called the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Tax law is important to estate planning, however, estate planning was never only about federal estate taxes.

Under terms of this piece of legislation the estate tax exclusion was set at $5 million in 2011 with ongoing annual adjustments to account for inflation. This scenario remains in place after the passage of the new tax relief act. In 2012 the estate tax exclusion was $5.12 million after being adjusted for inflation. This year it stands at $5.25 million.

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

Unification of Gift and Estate Tax

It would be logical to think that you may want to give away resources while you are still alive so that you can reduce your estate tax liability. The powers that be don't want that to be possible so there is a gift tax in place, and the gift tax is unified with the estate tax. The estate tax looms large for families who are in possession of considerable financial resources. On the federal level this death levy carries a maximum rate of 40% at the present time, and the amount of the exclusion is $5.25 million.

As a result of this unification the gift tax carries the same 40% maximum rate. So you can give it away while you are living or
prepare for it to be distributed after your passing, but one way or

another anything above $5.25 million is taxable at a rate of 40%.

Annual Gift Tax Exemption

This $5.25 million unified exclusion applies to a combination of gifts that you give throughout your life that are taxable coupled

with the value of your estate. The reason that we include the caveat "that are taxable" is because there is an annual gift tax exemption that exists outside of this lifetime exclusion.

The portability of the estate tax is still in place after the agreement that was reached to avoid many of the automatic tax increases and spending cuts that were in the offing for 2013.

Each year you can give gifts up to a mandated limit to any number of different recipients free of the gift tax. In 2013 this

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

limit has been raised to $14,000. It was $13,000 in 2012.

This $14,000 per person annual limit is afforded to each taxpayer. So a married couple would have a total of $28,000
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that they could give to any number of individuals in 2013 taxfree.

Taking advantage of this exemption can be a good way to reduce the taxable value of your estate as you transfer funds in a tax-free manner. Plus, you don't have to give direct gifts. You could use this exemption to fund certain types of irrevocable trusts or to distribute equity shares in a family limited partnership.

Estate Tax Exclusion Portability

The estate tax is portable between a husband and a wife. Every individual taxpayer is entitled to this $5.25 million exclusion in 2013. If you were to pass away your exclusion would not die with you. Because the estate tax exclusion is portable your surviving spouse would be able to use your exclusion as well as his or her own as long as they elect portability on the estate tax return.

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

RECOMMENDED BOOK Estate Planning Basics

Co-Authored by Attorney Dennis D. Duffy with Robert Armstrong and Sanford M. Fisch

Iowa Inheritance Tax

The state of Iowa is one of a handful of states that has an inheritance tax on the state level. An inheritance tax differs from an estate tax.

An estate tax is levied on the entirety of the taxable portion of the estate in question. An inheritance tax is imposed on the inheritance that is received by each individual nonexempt heir to the estate.

In the state of Iowa surviving spouses, parents, grandparents,

Estate Planning is about knowledge and choice protecting your ability to make choices throughout your life and caring for loved ones or supporting causes after you die. These are perilous times we live in with divorce, lawsuits, and bankruptcy on the rise. Good planning starts with protecting your assets and investments during your earning years and supports you during your retirement. Proper Estate Planning helps keep you out of court while you are alive. Traditional Estate Planning includes planning for final expenses, payment of outstanding debt, anticipation of taxes, and distributing any money left over as inheritances. Modern Estate Planning should anticipate differences in state laws, changing tax laws, failing pension plans, company downsizing, and unpredictable economic and investment trends. Sophisticated Estate Planning includes strategies to lessen your tax burden and lower or eliminate estate taxes. Legacy Estate Planning involves your life experiences, your insights and wisdom. It preserves not just your assets, but also your values. After reading this book, you will have the knowledge needed to make good choices getting started on - or updating - your own plan. This is a must have for all families looking to protect their hard-earned assets and pass their Legacy on to future generations.

children, stepchildren, grandchildren, and lineal descendents of decedents are exempt from the inheritance tax.

The Iowa inheritance tax is only applicable to estates that exceed $25,000 in value.

Conclusion
The estate tax on the federal level poses a very significant threat to your legacy if you have accumulated lots of assets throughout your life.

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

And, the $5.25 million exclusion that we have in place right now is not necessarily going to be etched in stone forever. You could be safe from the tax today, but the laws may change at some point in time. Your own financial fortunes can improve as well, and you could eventually be exposed to the estate tax.

If you are an Iowa resident and you have over $25,000 in assets you also may have to concern yourself with the inheritance tax depending on exactly who is on your inheritance list.

Given the intricacies of these laws the logical course of action is to develop an ongoing relationship with a licensed estate planning attorney to be certain that your resources are optimally situated. Your attorney will evaluate your assets, gain an understanding of your family dynamic and the exact nature Duffy Law Office is an estate planning law firm based in Davenport, IA whose mission is to provide residents of Davenport and surrounding areas with quality estate planning resources. Duffy Law Office regularly conducts free educational seminars on various estate planning subjects. This is a great opportunity for you to learn more about your estate planning options and the importance of planning. Visit our website for a list of upcoming seminars.
Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400

of your wishes, and make the appropriate recommendations.

References
Iowa Department of Revenue http://www.iowa.gov/tax/educate/78517.html Internal Revenue Service http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-and-Gift-Taxes Nolo http://www.nolo.com/legal-encyclopedia/iowa-inheritance-tax.html Forbes http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliff-deal-estate-and-gift-taxexplained/

Copyright 2013 Duffy Law Office | 1840 E. 54th Street, Davenport, IA 52807 | (563) 445-7400