THE REPEAL OF INDIANA'S INHERITANCE TAX

by Eric N. Allen July 2013

Last year the Indiana legislature enacted a plan to phase out Indiana's Inheritance Tax by the end of year 2021. However, that phase out was accelerated dramatically when the Indiana legislature enacted, and Governor Pence signed into law on May 8, 2013, the repeal of Indiana's Inheritance Tax. That repeal is effective retroactively to January 1, 2013, meaning that no Inheritance Tax will be assessed by the State of Indiana against any Indiana residence or any property located in the State of Indiana, as long as the owner of that property died on or after January 1, 2013. While the Inheritance Tax rates for the assets passing to children and grandchildren, because of the existing $250,000 exemption, generally resulted in tax rates that were approximately equivalent to sales tax; the amounts paid could still be significant. With regard to assets passed to other relatives or to unrelated parties, the exemptions were less and the rates much higher. That tax has now been completely eliminated and in fact, the Inheritance Tax Division of the Indiana Department of Revenue remains open only to enforce collection of tax owed from prior years.

Of course, Indiana cannot change federal law and there does remain in existence a Federal Estate Tax. To the extent that there is any good news about a tax, because of the credits available to an Estate, Estates with assets of less than $5.25 million will not be subject to that tax. The amount can be doubled for a married couple with properly drafted Wills or Trusts. For those who do not plan, the amount of Federal Estate Tax that will be required to be paid can approach 50% of the amount in the Estate over the $5.25 million.

If you have any questions concerning the repeal of the Indiana Inheritance Tax, the administration of an Estate or planning tools for dealing with Federal Estate Tax; please do not hesitate to contact the attorneys at ALLEN WELLMAN McNEW HARVEY, LLP.