They say there are only two things in life we can be sure about: death and taxes. The infamous expression may be true, but in Indiana, the legislators have turned it on its head. For recently “death” has overcome “tax,” at least with regard to the inheritance tax.
Inheritance taxes (also known as “death taxes”) have existed in Indiana in some form since 1913.1
A continual issue of political and moral discussion, Indiana was one of the few states left in the union which still imposed a tax on death. Interestingly, only a year ago the General Assembly had passed a 10 year phase-out of the inheritance tax. Supporters of the tax argued, among other things, that there was no immediate and responsible way to replace the lost revenue. Critics believed the repeal of the tax was necessary because the tax represented double-taxation that put an increased strain on small farms and local businesses.2 Critics also argued that repealing the tax would keep more small businesses and farms here in the state, which would then lead to more revenue.
Lawmakers finally agreed with the critics and on May 8, 2013, Governor Mike Pence signed into law a repeal of Indiana’s longstanding inheritance tax law in its entirety. The law is effective as of January 1, 2013, and applies to all deaths after that date.
So what does this change mean in practical terms? Here are a few examples of what the new law means:
Retroactivity
– the repeal of the inheritance tax is retroactive to January 1, 2013. Therefore, any pending estates for individuals who died in 2012 or years prior are still subject to the Indiana inheritance tax. Keep in mind that there are still exemptions in place for qualifying beneficiaries subject to the tax.
Review of Your Estate Plan
– for those of us with current estate plans, the repeal of the tax should prompt a review of the plan. Most Indiana estate plans were prepared with certain provisions tailored specifically to address and minimize the Indiana inheritance tax. With the repeal of the tax, it would be prudent to have an attorney review the plan to determine if any modifications would ensure maximum distribution to beneficiaries.
Probate Administration
– the process of probate should be shorter and with less paperwork, as a number of tax forms previously required by the Department of Revenue to transfer assets and make a reporting will no longer be required. The loss of tax reporting and filing requirements should allow many estates to be closed much quicker than under the old law.
1Ullum, Clarence B. (1931) “History of the Inheritance Tax Law of Indiana and Resume of Important Provisions Contained in the 1931 Statute,”Indiana Law Journal: Vol. 7: Issue 2, Article 3. Available at: http://www.repository.law.indiana.edu/ilj/vol7/iss2/3.
2 See Shella, Jim (2012) “Indiana to Phase Out Inheritance Tax”, Wishtv.com, http://www.wishtv.com/dpp/news/politics/state_politics/indiana-to-phase-out-inheritance-tax. Retrieved June 17, 2013.