Iowa does not have an estate tax, but it has an inheritance tax. In this article, we’ll explore the details of this tax, and break down Iowa’s other inheritance laws, including the probate process, what happens if you die without a valid will and where you may stand if you’re not part of the decedent’s immediate family. If you want professional guidance for your estate planning after reading this article, the SmartAsset matching tool will pair you with capable financial advisors in your area who will assist you throughout this process.
Does Iowa Have an Inheritance Tax or an Estate Tax?
Iowa has no estate tax, but does have an inheritance tax. If you are a parent, grandparent, great-grandparent, child, stepchild, grandchild, great-grandchild or direct lineal ascendant or descendent, you won’t owe any inheritance tax in Iowa. In addition, if your inheritance is less than $25,000, you will owe no inheritance tax.
However, for most other individual inheritors, there are two tax rates that are relevant. There are Tax Rate B beneficiaries, which are siblings, half-siblings, and children-in-law. There are Tax Rate C beneficiaries, which applies to uncles, aunts, nieces, nephews, foster children, cousins, brothers-in-law, sisters-in-law and all other individuals. The inheritance tax rate for Tax Rate B beneficiaries ranges from 5% to 10%, and the inheritance tax rate for Tax Rate C beneficiaries ranges from 10% to 15%. There are also Tax Rate F beneficiaries, which are unknown heirs, and their tax rate is 5%. Tax Rate D and Tax Rate E beneficiaries are for various types of organizations.
While there is no state estate tax in Iowa, larger estates may be subject to the federal estate tax.
Other Necessary Tax Filings
When you die, there are many federal and estate tax situations that need to become a priority for those who survive you. Besides the state estate tax, you need to look out for the following:
- Final individual federal and state income tax returns: The federal and state tax returns are due by Tax Day of the year following the individual’s death.
- Federal estate/trust income tax return: Due by April 15 of the year following the individual’s death.
- Federal estate tax return: Due nine months after the individual’s death, though an automatic six-month extension is available if asked for prior to the conclusion of the nine-month period.
- This is required only of individual estates that exceed a gross asset and prior taxable gift value of $12.06 million in 2022 ($24.12 million for married couples).
To file any of these estate-based returns, you’ll need to apply for an employer identification number (EIN) with the IRS. You can do this online, by fax or via mail.
Dying With a Will in Iowa
In order to make your will legitimate in Iowa, you must sign your will in front of two witnesses, and those witnesses must sign your will. The witnesses have to see you sign your will.
You do not have to notarize your will in order to make it legal. However, you can make your will “self-proving,” which helps to speed up the probate process because the court can accept the will without contacting the signing witnesses. You can make your will self-proving if you and your witnesses go to a notary and sign an affidavit that states who you are and that each of you knew you were signing the will.
You should keep in mind that if you and your spouse divorce, or if a court determines that your marriage is not legal, any language in your will that leaves property to your spouse or names your spouse as the executor will be revoked under Iowa law. However, if you and your ex re-marry, that rule won’t apply.
If the will is determined to be valid, the next step is the probate process. Iowa is not a state with the Uniform Probate Code. However, the state does offer ways to avoid or simplify the probate process.
One procedure, the affidavit procedure, allows heirs to completely skip probate. Estates can qualify for this process if there is no real estate, or if the real estate passes to the spouse as joint tenant property, and the gross value of the decedent’s property is $50,000 or less. In order to use this process, all an heir has to do is prepare a short affidavit, signed under oath, stating that they are entitled to a certain asset. When the person or institution that has the property receives the affidavit and a copy of the death certificate, they then release the asset to the heir.
The affidavit must state that debts to known creditors, debt owed to the Iowa Department of Human Services for benefits the deceased person received, and taxes owed to the Iowa Department of Revenues have been paid. If not, the affidavit must state that those debts and taxes will be paid from the assets received by the affidavit. There is a 40-day waiting period to use this procedure.
Iowa also offers a simplified probate procedure for small estates. If you used the affidavit procedure, you won’t need to use the simplified probate process. In order to qualify for the simplified probate process, the gross value of the estate must be $100,000 or less. In order to use the procedure, the executor files a written request with the local probate court asking to use the simplified process. The court can decide to allow the executor to distribute the assets without having to go through regular probate.
The written request must state the decedent’s name, address, and date of death, the name and relationship of each inheritor, the name and address of the personal representative, and the name and address of the surviving spouse, if any. The request must also state that the gross value of the estate is $100,000 or less, and if there was a will, as well as the date the will was signed, if applicable.
Dying Without a Will in Iowa
Dying without a will isn’t the best situation if what happens to your assets after your death matters to you. Iowa’s laws label these types of estates “intestate,” which means there is no will, or no valid will. The court then has to follow intestate succession laws to determine who inherits your property, and how much of it. If there isn’t a will, the probate court will appoint an executor or a personal representative to wrap up the decedent’s estate.
Although there are often extenuating factors when someone dies intestate, but it’s best not to die intestate and put your loved ones through that kind of stress. If you’re not sure what kind of estate plan you want to make, you can seek the help of a financial advisor specializing in legacy planning.
Spouses in Iowa Inheritance Law
If you die intestate in Iowa, which is not a community property state, and have a surviving spouse, your spouse’s inheritance depends on whether or not you have living descendants from another relationship. If you have no descendants, your spouse will inherit everything. If you only have descendants from your relationship with your spouse, your spouse will still inherit everything.
Children in Iowa Inheritance Law
If you have living descendants, such as children, grandchildren, or great-grandchildren from another relationship, they will split your intestate property with your spouse. The percentage of your estate that your spouse gets depends on how much your intestate property is worth. If your property is worth $100,000 or more, your spouse and your children will split the property evenly. However, if your spouse’s half equals less than $50,000, the property left to your descendants will be used to make up the difference.
|Intestate Succession: Spouses and Children|
|Inheritance Situation||Who Inherits Your Property|
|Children but no spouse||– Children inherit everything|
|Spouse but no descendants||– Spouse inherits everything|
|Spouse and descendants from you and that spouse||– Spouse inherits everything|
|Spouse and at least one descendant from you and someone other than that spouse||– Spouse inherits half of your real estate and at least half of your personal property, as long as the value is worth at least $50,000. If the value is less, the difference will be taken from the descendants’ share and added to the spouse’s |
– Descendants inherit the rest
Legally adopted children have just as much right to their intestate share as biological children do. In addition, if the decedent placed their child up for adoption and that child was adopted by another family – other than your spouse – they are not legally eligible to receive intestate inheritance from the decedent. However, foster children and stepchildren that were never legally adopted by the decedent are not eligible to receive a share as the decedent’s child. Children born outside of marriage still receive their share as long as paternity was legally established, you acknowledged your paternity in writing, or you openly and generally acknowledged your paternity.
Children conceived by you but born after your death are also entitled to their share of the inheritance. However, if the child is born as a result of an implantation of an embryo after your death, there are several conditions that apply to their inheritance. In that case, the child can only inherit if you are proved to be the genetic parent, you authorized your surviving spouse to use your genetic material, and they are born within two years of your death. Any of your heirs whose inheritance would be reduced by the birth of the child have one year from the time of the birth to contest that posthumous child’s right to inherit. Grandchildren will receive a share only if their parent is not alive to inherit.
Unmarried Individuals Without Children in Iowa Inheritance Law
If there are no spouses or children, the inheritance then goes to the closest living relatives, in the order listed in the chart below.
|Intestate Succession: Extended Family|
|Inheritance Situation||Who Inherits Your Property|
|Parents||Parents inherit everything|
|Siblings, but no parents||Siblings inherit everything|
There is an intestate process designed to make sure your family inherits. However, it is generally best to write your own will to ensure that all of your property ends up in the hands you want it in. If no eligible relatives can be found, your property will end up owned by the state of Iowa.
Non-Probate Iowa Inheritances
The probate process can be difficult and expensive. However, you have some options when trying to avoid the probate process in Iowa. Listed below are some of the assets that will not have to go through probate and instead go directly to the beneficiaries, even if there is no will.
- Any property in a living trust
- Life insurance policies
- 401(k)s, IRAs, other retirement accounts
- Securities in transfer-on-death accounts
- Pay-on-death bank accounts
- Joint tenancy real property
Other Situations in Iowa Inheritance Law
Some of these are similar to the other states. Immigration status is irrelevant when it comes to inheritance. If a relative of yours is entitled to a share of your assets, they can inherit no matter what their citizenship status is. If you give an heir property during your lifetime, the value of that gift can be subtracted from your relative’s share, but the presumption is that the property is a gift and not an advancement, until proven otherwise. Relatives conceived before, but born after, your death, also known as posthumous relatives, are just as entitled to their inheritance as any other relative.
However, Iowa treats half-relatives differently than most states. “Half” relatives do not inherit the same way that “whole” relatives do. For example, if you had a full sibling and a half sibling who only had the same mother, the inheritance is divided into two shares – one for siblings with the same mother, and one for siblings with the same father. Your full sibling would receive the full share of the inheritance for siblings with the same father. Your full sibling and half sibling would then split the share of the inheritance for siblings with the same mother. Your full sibling would end up with 3/4 of the inheritance, and your half sibling would end up with a quarter of the inheritance.
Tips for Estate Planning
- A financial advisor can help you put an estate plan into action. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When planning your estate, it’s important to know how much you have in your retirement accounts and how much you will have when you retire. SmartAsset’s 401(k) calculator can help you estimate what your account could look like.
- Changing regulations can also impact your estate plan. A new government rule in 2022 could apply RMDs to an inherited IRA for 10 years. Here’s what you need to know.
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