Iowa: A great place to live; not a great place to die.
Iowa is one of only six states with an inheritance tax.
Spouses, children, and parents are excluded from the inheritance tax. Nieces and nephews, siblings, and business partners all have to pay up. Government shouldn’t tax some people but not others in the same circumstance.
The solution is simple. Legislators need to:
Completely eliminate the inheritance tax for
Death and taxes may be the only two certainties in life. The problem in Iowa is that our state combines those two certainties in the form of a tax bill for heirs in certain situations. As one of just six states in the country to still impose an inheritance tax, Iowa bills non-lineal descendants when the total value of an estate exceeds $25,000. This means that spouses, children, and even parents are excluded from paying the inheritance tax, while nieces and nephews, siblings, domestic partners, and business partners of the deceased are all required to pay. Iowa is a great place to live and raise a family, but it is not a great place to die.
The inheritance tax is a tax paid by the person who receives assets upon the death of another. In Iowa, this often means a niece or nephew who inherits a share of the family farm from an uncle who never married will be faced with finding hundreds of thousands of dollars to hold onto land that’s been in their family for generations. Iowa’s inheritance tax hits entrepreneurs, too. If unrelated partners build a business together and one of them dies, the deceased partner’s half of the business would be subject to the inheritance tax if they choose to leave their portion to their business partner.
Whether it’s a family farm or a small business, the person who receives the asset may end up with a really difficult decision if they don’t happen to have lots of cash on hand: sell part of the farm or business to pay the tax bill, or take on more debt to be able to pay the state.
Individuals with large estates frequently hire accountants and attorneys to help guide them through the transfer of wealth process. With the help of these professionals, individuals find ways to protect their assets to the best of their ability, with the use of trusts or other estate planning tools. Individuals with smaller estates that exceed the extremely low threshold of just $25,000 may not have the financial means or connections to wealth management professionals to protect their assets upon their death.
Further, Iowa’s inheritance tax discourages individuals with large estates but no lineal decedents from spending their retirement in Iowa. These individuals may choose to leave Iowa altogether simply to protect the assets they have spent a lifetime working to earn. Warm-weather states like Florida and Arizona do not have inheritance taxes. Neighboring states of South Dakota, Missouri, and Wisconsin also have no inheritance tax. In fact, not even tax-happy California has an inheritance tax.
In 2019, the Legislative Services Agency projected that Iowa would receive about $87 million in revenue from the inheritance tax in Fiscal Year 2021. In a budget nearing $8 billion and a surplus over $300 million from the previous fiscal year, eliminating the inheritance tax is not something that will have an insurmountable impact on reasonable state expenditure levels.
Deceased individuals have already paid taxes on their assets. The individuals they choose as heirs should not be forced to pay taxes on those same assets again. It is time that Iowa stops stealing from the grave by making our state, which is a great state to live and raise a family, a better state in which to die. It is time to bury Iowa’s death tax.