Estate & inheritance taxes

The protection options described throughout this book let may reduce the value of your estate, which may reduce your federal estate tax and state inheritance tax.

These taxes are hot-button political topics, so their rules have undergone major revisions over the past few years—with further revisions on the horizon. Because these tax rules are in flux, we won’t go into great detail here. However, here are general topics you should discuss with your professional advisors.

Charitable gifts: Gifts to qualified charities are subtracted from your estate value before the taxes are computed.
Estate tax exemption: The vast majority of Americans don’t pay estate taxes because their gross taxable estate falls below the standard exemption. As of January 2007, that exemption is $2 million or $4 million for married couples who have done some simple estate planning. However, that amount will change over time. Don’t forget that land can be a particularly valuable asset—and one that’s subject to inflation.
Estate tax rate: As of January 2007, any estate value above the exemption is taxed at 45%, a rate that makes donations look a lot more affordable! However, like the exemption amount, the estate tax rate is subject to frequent change.
Additional deduction for easements: The 1997 Taxpayer Relief Act provides an additional estate tax deduction for the donation of conservation easements. Under Section 2031(c), qualified donors can exclude up to 40% of the value of the protected land for estate tax purposes (up to a cash value of $500,000). It also allows the heirs to donate a conservation easement—after the death of their loved one but before the estate tax return is filed.
State inheritance taxes: Unlike federal estate taxes, which are paid by the estate, Iowa’s inheritance tax is paid by the beneficiary These tax rates are based upon the relationship of the beneficiary to the deceased, with no inheritance tax due from spouses and direct lineal descendents or ascendants (i.e. children, grandchildren, parents). If conservation protections reduce your estate’s value, it may reduce your heirs’ inheritance taxes.

More information on tax issues:
Income taxes | Capital gains taxes | Estate & inheritance taxes | Property taxes | Cautions