Indianapolis estate planning attorneys often talk about the federal estate tax. However, depending on the state within which you reside you may be faced with death taxes on the state level as well as the federal level.
At the present time we do not have an estate tax here in Indiana. We do however have a state inheritance tax but it is being phased out over a 10 year period.
What is the difference between an estate tax and an inheritance tax? An estate tax is levied on the entirety of the estate before any monies are distributed to the heirs. So if three children were receiving equal shares of an estate they would each get one third of the remainder that was left after the estate tax had been paid.
An inheritance tax is levied on each of the recipients of an inheritance. In Indiana there are three different beneficiary classes. Class A beneficiaries are close relative such as parents, children, grandparents, grandchildren, stepchildren, and spouses of children or stepchildren.
At the time of this writing there is a $250,000 exemption for Class A beneficiaries before the tax kicks in.
For Class B beneficiaries (siblings, nieces and nephews) the exemption is $500, and for Class C beneficiaries (any person or entity not previously mentioned) it is just $100.
The rate of the inheritance tax varies depending on the class of the beneficiary and the amount of the inheritance.
Those who welcome tax relief are pleased with the gradual phase out, but at the present time the inheritance tax is still a reality.
A good estate planning lawyer will be able to help you position your assets optimally in light of the death taxes that exist. There are tax efficiency strategies that can be employed, and this is one of the reasons why it is a good idea to retain legal counsel when you are planning for the future.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.