Repeal of the Indiana Inheritance Tax
On May 8, 2013, Gov. Pence signed legislation repealing the Indiana inheritance tax for the estates of all individuals who pass away in 2013 or in later years. This brings Indiana into line with the majority of states that do not have a state-level death tax, and it certainly provides a meaningful benefit for Hoosier families dealing with the loss of a loved one. What follows are a few important points to keep in mind about the effect of this repeal.
Indiana Inheritance Tax Before 2013. The inheritance tax continues to apply to the estates of individuals who died in 2012 or before. That said, there are strategies that potentially could be implemented by pending 2012 estates to reduce the inheritance tax impact. Of course, estate counsel should be consulted before filing those inheritance tax returns.
Indiana Probate and Trust Administration. In most instances the repeal of the Indiana inheritance tax system will make the administration process quicker and less expensive for estates of individuals who die in 2013 or later. Although no longer required to file an Indiana inheritance tax return, the executor (personal representative) of an estate still plays an important role and retains numerous duties and responsibilities. As examples, the executor still must collect and inventory the estate's assets, deal with creditors, pay any income taxes, distribute assets according to the estate plan, and provide an accounting to the interested parties.
Federal Estate Tax. The federal estate tax law, too, was favorably changed in 2013 and now currently allows a taxpayer to shelter up to $5,250,000 from the federal estate and gift tax this year. Advanced estate planning can leverage this exemption to further reduce an estate tax liability. In addition, without the hindrance of the Indiana inheritance tax, the federal exemption amount can now be utilized more flexibly for married couples on the first spouse's death to benefit multiple generations.
Income Tax Basis Documentation. Finally, date of death values for estate assets have continued importance and should be documented to establish the beneficiary's increased income tax basis. The significance of this point should not be overlooked, particularly in this era of high income tax and capital gain rates.
Thankfully, estate plans will not need to address the Indiana inheritance tax going forward.
A thoughtful estate plan can take advantage of this tax law change by carefully addressing your family's own unique circumstances and managing federal estate and income tax considerations in order to meet your objectives. As always, if we can be of assistance to you in answering questions about this new law and the opportunities that may be available to you, please let us know.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
CIRCULAR 230 DISCLOSURE: To ensure compliance with recently-enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication is not intended or written by us to be used, and cannot be used, by anyone for the purpose of avoiding federal tax penalties that may be imposed by the federal government or for promoting, marketing or recommending to another party any tax-related matters addressed herein.
For individuals who own real estate or other assets located in a state other than Indiana it continues to be important to consult with estate planning counsel to determine whether his or her estate plan adequately addresses any potential state-level death tax or probate administration in that other state.