Indiana Changes Inheritance Tax Law

On March 20, 2012, Indiana Governor, Mitch Daniels, signed into law dramatic changes which will affect the estates of everyone who dies after June 30, 2012 while a resident of Indiana.

When a person dies while residing in Indiana virtually all property that passes to anyone because of the death (except for example, life insurance that goes to a named beneficiary) is subject to Indiana inheritance taxes.

Current Indiana law provides:

  • All property that goes to the decedent’s spouse is exempt from taxation;
  • Only $100,000 of property that goes to his/her parents and his/her children (including step-children) and their children is exempt from taxation;
  • Only $500 of property that goes to the spouse of his/her child and to his/her brothers and sisters is exempt from taxation.
  • Only $100 of his/her property that goes to any other person is exempt from taxation.

For deaths occurring after June 30, 2012, the law will be as follows:

  • All property that goes to the decedent’s spouse is exempt from taxation;
  • $250,000 (instead of $100,000) of property that goes to (1) his/her parents; (2) his/her children (including step-children) and their children; and, (3) to the spouse of his/her child, is exempt from taxation;
  • $25,000 (instead of $500) of property that goes to his/her brothers and sisters is exempt from taxation.
  • $25,000 (instead of $100) of property that goes to any other person is exempt from taxation.

All Indiana Inheritance Taxes to be Phased Out over Ten Years

A significant feature of the new law also reduces the amount of inheritance taxes to be paid by initially providing a nine percent (9%) credit against the taxes assessed and then adding an additional percent (9%) credit each year, such that after June 30, 2012, there will no longer be an Indiana Inheritance Tax.  The following abbreviated examples are illustrative of the changes caused by the increased exemptions and the additional tax credit:

Death occurs July 1, 2012
Total property transferred to a child = $450,000
$250,000 is exempt leaving $200,000 subject to taxation
Taxes due $5,250 minus 9% credit ($472.50) = $4,777.50

Death occurs July 1, 2016
Total property transferred to a child = $450,000
$250,000 is exempt leaving $200,000 subject to taxation
Taxes due $5,250 minus 36% credit ($1,890) = $3,360.

Death occurs July 1, 2012
Total property transferred to a brother or friend = $450,000
$25,000 is exempt leaving $425,000 subject to taxation
Taxes due $39,500 minus 9% credit ($3,555) = $35,945.

Death occurs July 1, 2016
Total property transferred to a brother or friend = $450,000
$25,000 is exempt leaving $425,000 subject to taxation
Taxes due $39,500 minus 36% credit ($14,220) = $25,280.

Death occurs July 1, 2022
No Indiana Inheritance Taxes due by anyone.

 

Note that the inheritance rates were not changed by the new law and that the tax rates vary based upon the relationship of the person receiving the property to the person who died.

Note further that there are deadlines and court requirements for matters pertaining to inheritance taxes and that additional credits or penalties may apply.