Indiana currently does not impose a separate estate tax due to changes in the federal estate tax laws that will remain in effect through December 31, 2010. However, Indiana is one of 7 states that assesses a separate inheritance tax on certain property owned by an Indiana resident and real estate and tangible personal property located in Indiana and owned by a nonresident. Each beneficiary receives an exemption from the Indiana inheritance tax based on the beneficiary's degree of relationship to the decedent, which can make the calculation of the tax tricky if multiple beneficiaries of varying degrees of relationship to the decedent are involved. Here are the general rules with regard to the Indiana inheritance tax:
- The exemptions are as follows:
- Surviving spouses and charities are entirely exempt from the inheritance tax.
- Class A - parents, children, stepchildren, grandparents, grandchildren and other lineal ancestors and lineal descendants are eligible for an exemption of $100,000 each.
- Class B - brothers, sisters, lineal descendants of brothers or sisters, daughters-in-law and sons-in-law are eligible for an exemption of $500 each.
- Class C - anyone not listed above, including aunts, uncles, cousins, friends, nieces and nephews by marriage, and corporations are eligible for an exemption of $100 each.
- Certain expenses can be deducted, including but not limited to funeral expenses, attorney's fees, personal representative and trustee fees, debts owed by the decedent, unpaid individual income taxes (both federal and state) on the decedent's income to date of death, and mortgages.
- The tax rates vary by class - Class A rates range from 1%-10%; Class B rates range from 7%-15%; Class C rates range from 10%-20%.
- An Indiana Inheritance Tax Form, Form IH-6, must be filed within 9 months of the decedent's date of death and the inheritance tax must be paid within 12 months of the date of death, otherwise interest will begin to accrue from the date of death. If the inheritance tax is paid within 9 months, then a 5% discount is applied.
This information is complements of the Indiana Department of Revenue.
The bottom line - if you're an Indiana resident and your estate is passing to someone other than your spouse, or if you're a nonresident who owns real estate and/or tangible personal property located in Indiana and it's not passing to your spouse, then your beneficiaries may owe an Indiana inheritance tax. Up next, Iowa inheritance taxes.
For more on Indiana inheritance taxes, refer to Overview of Indiana Inheritance Tax Laws.