The words “death taxes” were created by persons (politicians) without defining the meaning or definitions of the words when they are spoken or written. I will try to bring meaning to the words “death taxes.”
The event of death can cause two separate and distinct taxes. They are:
- A Federal estate tax and
- A State’s inheritance tax
First the Federal estate tax is imposed on assets of a decedent’s estate over which he/she have title, ownership, dominion or control and have a net value of greater than $5,430,000 (called the Applicable Exclusion Amount) for deaths that occur in the year 2015. For deaths that occur in the year 2016, the Applicable Exclusion Amount is $5,450,000.
However (there is always a “however”), there is a Federal Estate Tax Free Transfer (called the Marital Deduction) on the assets which pass to a decedent’s surviving spouse regardless of the amount on the condition that the surviving spouse have title, ownership, dominion or control of the assets.
Second, the Iowa Inheritance Tax is imposed on what a person receives from a decedent and the relationship of the recipient to the decedent. Following is the Iowa Inheritance Tax Rate Schedule:
A very shorthand explanation is that the Federal estate tax is a decedent’s tax and the Iowa inheritance tax is a recipient’s tax. There is no uniformity among the states with regard to having an inheritance tax or a state’s estate tax. If you own real estate in a state other than Iowa, you need to be aware and informed of that particular state’s inheritance or estate tax.
Note: Do not be misled to believe that this is an exhaustive and comprehensive explanation of “death taxes.” My intent is to define the words “death taxes” and shed some light on the use of those words. Many articles and millions of words have been printed to discuss and explain the Federal estate tax and Iowa inheritance tax. This blog is merely a speck on the topic of “death taxes.”