Iowa Inheritance Tax Questions

[Brother2009]

My brother recently passed away. He was a resident of Iowa, and I am in another state. He had no family, wife, kids, etc. I have been told that Iowa has a law that I have to pay an inhertance tax on his estate, even though I am not a resident of Iowa. True? Also, there is no tax if the estate goes to a parent, spouse, or child, but becasue I am a brother, there is a tax? Seems odd. And finally, since his life insurance transferred automatically to me, as did his 401K, why must these figures be listed as his estate and why do the lawyers get a percentage based on this total? The lawyers did not life a pen to handle this portion of his estate. It doesn't seem right that they get a cut of that portion of the money.What is the name of your state (only U.S. law)?

 

[anteater]

Yes, assets passing to you are subject to the IA inheritance tax. Your state of residence does not make a difference. For those states that have inheritance taxes, it is not unusual for transfers to siblings to be taxable. In fact, some states make transfers to lineal descendants taxable.

http://www.iowa.gov/tax/educate/78517.html

The statutory maximum allowed for a personal representative in Iowa is:

633.197 Compensation.

Personal representatives shall be allowed such reasonable fees as may be determined by the court for services rendered, but not in excess of the following commissions upon the gross assets of the estate listed in the probate inventory for Iowa inheritance tax purposes, which shall be received as full compensation for all ordinary services:

For the first one thousand dollars, six percent;

For the overplus between one and five thousand dollars, four percent;

For all sums over five thousand dollars, two percent.

For purposes of this section, the gross assets of the estate shall not include life insurance proceeds, unless payable to the decedent's estate.

For the estate attorney:

633.198 Attorney fee.

There shall also be allowed and taxed as part of the costs of administration of estates as an attorney's fee for the personal representative's attorney, such reasonable fee as may be determined by the court, for services rendered, but not in excess of the schedule of fees herein provided for personal representatives.

 

[latigo]

Maybe you wouldn’t be so worked up if you had troubled to get your facts straight.

For instance the proceeds of a life insurance policy insuring the life of the deceased that are payable to other than the decedent’s estate ARE NOT subject to an Iowa inheritance tax!

(Iowa does not consider such proceeds as part of the gross estate for any purpose. See Iowa Code Inheritance Tax Chapter 450. And I rather suspect it may be the same for the 401K inasmuch as it was paid to you outside of probate.)

Secondly, the fees for the attorney for the personal representative ARE NOT based upon a percentage of the gross or net estate. No such fees can be paid until approved by the court and shown to be reasonable in amount and based on actual services rendered. *

If you are so inconvenienced by Iowa’s inheritance tax laws, perhaps you can air your grievances with the Iowa legislature or state tax collector.

You mention "odd"? This is odd:

Millions of people have and are losing their jobs, their homes, their cars, their savings, living on money set aside for their children’s education, etc., etc., and then there are those that whimper over being charged a small percentage tax on money that is literally dropped in their lap.
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[*] Iowa Code Section 633.198 Attorney fee.

“There shall also be allowed and taxed as part of the costs of administration of estates as an attorney's fee for the personal representative's attorney, SUCH REASONABLE FEE AS MAY BE DETERMINED BY THE COURT, FOR SERVICES RENDERED, but not in excess of the schedule of fees herein provided for personal representatives.” *(Emphasis added)

Iowa Code Section 633.197 Compensation. (Fiduciary)

“Personal representatives shall be allowed such reasonable fees as may be determined by the court for services rendered, but not in excess of the following commissions upon the gross assets of the estate listed in the probate inventory, which shall be received as full compensation for all ordinary services:

For the first one thousand dollars, six percent;

For the overplus (sic) between one and five thousand dollars, four percent;

For purposes of this section, the gross assets of the estate shall not include life insurance proceeds, unless payable to the decedent's estate.”

 

[Brother2009]

The comment "Maybe you wouldn’t be so worked up if you had troubled to get your facts straight." Well, that's why I posted here, trying to get some facts.

As for the "odd" part, I thought it was odd that siblings are taxed in this situation but if there are spouses, parents, or children, they are not taxed.

I am thankful for every penny that gets dropped into my lap. I just don't want to see my penny go to someone else when it is rightfully mine. Is this so unamerican?

I will have to check the Tax Chapter 450 because the lawyer we currently have, is including the 401K in the gross estate. Now we get back to which facts do we trust, our lawyer, or an online forum?

 

[anteater]

(Iowa does not consider such proceeds as part of the gross estate for any purpose. See Iowa Code Inheritance Tax Chapter 450. And I rather suspect it may be the same for the 401K inasmuch as it was paid to you outside of probate.)

At least tentatively, I have to disagree with you on the 401K, Lat. The standard is not whether the assets transfer outside of probate, but whether assets are considered part of the gross estate. While life insurance proceeds payable to a designated beneficiary are excluded from the gross estate, doing a quick scan of the Iowa statutes, I don't see anything that would exclude a 401K.

Secondly, the fees for the attorney for the personal representative ARE NOT based upon a percentage of the gross or net estate. No such fees can be paid until approved by the court and shown to be reasonable in amount and based on actual services rendered. *

True, but you have to admit that, in states that include a method for calculating compensation and fees in their statutes, the calculation quickly morphs into a standard fee. And it usually takes an objection and strong argument before the court will agree that the statutory method does not result in "reasonable fees."

Brother2009: I will have to check the Tax Chapter 450 because the lawyer we currently have, is including the 401K in the gross estate. Now we get back to which facts do we trust, our lawyer, or an online forum?

Unless there is some interpretation of the Iowa Code floating around out there that excludes the 401K from the gross estate (and I don't believe that there is), I have to go with the attorney. Your argument is not that the 401K should not be considered as part of the gross estate, but that including it in the calculation of attorney fees results in unreasonable fees for the effort expended.