There have been no major changes to Iowa Estate Planning laws for 2023. Estate Planning is something that many people don't look forward to. Not many people like to think about their own mortality and, ultimately, their death. Still, it is very important to determine your last wishes. There have been some changes to Iowa inheritance tax laws.
The Iowa legislature has repealed the inheritance tax in Iowa, which will diminish gradually over the next five years and be completely phased out by 2025. This article will give a general overview of Iowa Estate Planning laws and any recent updates to Iowa laws on Estate Planning.
Estate planning is crucial for managing and protecting your assets, avoiding probate, reducing taxes, and ensuring your healthcare wishes are honored. Our survey revealed that while only 41.7% of respondents have created an estate plan, over 50% cited "protecting my family" as the primary reason for doing so. The most common documents included are a will (40.3%) and power of attorney (37.3%). However, only 27.8% have discussed their plans with family. This highlights the importance of estate planning in safeguarding your loved ones' future. Learn more here.
What Does A Will Do in Iowa?
In Iowa, any person or Testator can create a will, so long as they are over age 18 and have a "sound mind" or mental capacity to create the will. There must be two witnesses present who must sign in the presence of the Testator. A last will and testament in Iowa is a document created by a person who is also known as a testator. The will lays out what will happen to the Testator's real and personal property and any assets that the Testator has upon their death. The property described in the will passes to the beneficiaries after the death of the Testator. Usually, the Testator will leave his property and assets to family members. The Testator has the free discretion to leave their property and assets to anyone they choose. They also have the option to leave their property to charity if they choose. If you're looking to learn more about how to create a will in Iowa, please read our article, How To Create A Legal Will in Iowa.
It is important to note that if a major life event occurs, such as marriage or divorce, it is good to revisit and possibly change your will. You can revoke your will and create a new one at any time, but it is recommended to change your will after a divorce. Sometimes, people get divorced or married and forget to update their will, which has lasting consequences.
If you don’t have a will in place in Iowa, your estate may be entered into probate. Learn more about the Iowa Probate Process in our recent article.
What is Iowa Intestate Succession?
It is important to note that if someone dies without a will, they are then called dying "intestate." In Iowa, the laws of intestate succession apply when you die without a will in place. Because you have no will, your real property, personal property, and assets will be distributed to your beneficiaries according to Iowa intestate succession laws. The Iowa laws of interstate succession state that:
- If you have a spouse but no children, your surviving spouse will inherit everything from your estate.
- If you had children with your surviving husband or wife, the surviving spouse would inherit everything from your estate.
- If you have children but no husband or wife, your children will inherit everything from your estate.
- Things get complicated when you have a surviving spouse and a descendant(s)/beneficiary(ies) from another person who is not your surviving spouse. In this scenario, the surviving spouse will receive ½ of your real property and ½ of your personal property, as long as the surviving spouse's share is over $50,000.00. The remaining descendant(s)/beneficiary(ies) will receive the remainder.
- If the decedent has surviving parents and no spouse, the parents will receive all of the estates.
- If you have only siblings, and no spouse, descendants, or surviving parents, the siblings inherit everything.
- Lastly, if you die intestate and have no surviving spouse or lineal descendants, your estate will "escheat" and fall back to the state. The state will then own all of your real and personal property.
As you can see, intestate succession can be complicated. This is why we highly recommend having a will in place to allocate all of your assets upon your death. A last will and testament is a great tool in the estate planning toolbox and can save your surviving family members a lot of stress and confusion upon your death.
What Assets Are Not Affected by Intestate Succession Under Iowa Law?
Some assets are not affected by intestate succession under Iowa law:
- Life insurance proceeds pass to the persons identified as the beneficiaries in the life insurance policy upon the decedent's death. They are not affected by the Iowa laws of intestate succession.
- Living trust property is unaffected by intestate succession.
- Retirement, pension, IRA accounts, and 401K accounts are also not affected by intestate succession.
- Transfer on death accounts, also known as payable on death accounts, are paid immediately upon the death of the decedent to the beneficiaries. They are unaffected by intestate succession.
- Joint-Tenancy owned real property, upon the death of the decedent, the real-property will immediately pass to the co-joint tenant, who takes full title to the real property.
Iowa Living Will Laws
In Iowa, a living will is a document that carries out your last wishes on end-of-life healthcare decisions. To be valid in Iowa, the person making a living will must:
- Be over the age of 18 of majority and have the mental capacity to create a will
- Must have two witnesses present and sign the will.
- One of the witnesses must be a non-relative
- The witnesses must sign the will in the presence of one another.
- The will must be given to the physician attending to the person who created the will.
What Is Iowa Inheritance Tax?
In Iowa, an inheritance tax is a death tax that passes to beneficiaries who receive an inheritance in the form of gifts, assets, money, property, etc. In Iowa, beneficiaries must pay a tax to the state of Iowa when they receive an inheritance from a decedent. Some family members/beneficiaries are precluded from paying a tax to the state of Iowa entirely, such as grandparents, parents, children, and grandchildren.
On the other hand, more extended families such as nieces, nephews, uncles, and aunts are subject to inheritance tax and must pay it in the State of Iowa. Further, when the net value of the decedent's estate is less than $25,000.00, there is no inheritance tax due. A general rule of thumb for the beneficiaries who will owe inheritance tax is that the more you inherit, the more tax you will owe.
Some assets are not affected by intestate succession under Iowa law, such as:
- Life insurance proceeds
- Living trust property
- Retirement
- Pension
- IRA accounts
- 401K accounts transfer on death accounts
- Joint-Tenancy owned real property
The Inheritance Tax In Iowa Will Be Phased Out By 2025
Iowa is a state that has decided to get rid of its inheritance taxes through the state legislature. Iowa Bill S.F. 619, passed on May 19th, 2021, will completely repeal and phase out the Iowa inheritance tax starting in 2021 and terminate the tax entirely by 2025. This means that if someone passed away in 2021, they would be taxed 20% less than they would have been originally under the old laws. If they pass away in 2022, they will be taxed 40% less than they would have been taxed initially under the old laws. If they pass away in 2023, they will be taxed 60% less than they would have been taxed under the old laws. If they pass away in 2024, they will be taxed 80% less than they would have been taxed under the old laws. And lastly, if they pass away after 2024, they will not have to pay any inheritance tax because the tax will be terminated entirely by then.
To learn more about Iowa estate planning, Iowa trusts, or to get started on your estate plan, contact us today. Our skilled attorneys can be reached at (630)-324-6666 or by filling out our confidential contact form.
If you're looking to learn more about Iowa estate planning, read our article Revocable and irrevocable trusts in Iowa.
If you’re in the Davenport, IA area, and are looking for an experienced Davenport estate planning attorney near you, please feel free to reach out to O’Flaherty Law of Davenport at:
201 W. 2nd St. Ste. 400A
Davenport, IA 52801
563-503-5910
https://www.oflaherty-law.com/areas-of-law/davenport-attorneys
Disclaimer: The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.
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