Estate Planning
August 1, 2024

Inheritance Taxes in Indiana: How to Make Sure Your Legacy Lives On

Stewart Willis
PRESIDENT & HIGH NET WORTH ADVISOR

Estate planning is an exhausting experience, especially if you don’t know where to start. Tax planning and preparation is a key part of understanding how to structure your assets so your heirs get the most value. Also, estate planning does more than protect your assets from inheritance tax in Indiana. It can protect privacy and avoid conflicts down the road.

You must understand these elements to ensure your assets are distributed exactly as you intend. This blog will help you to take control of your estate planning now to guarantee your wishes are carried out precisely.

Indiana Death Taxes

Generally speaking, the Indiana death tax is the inheritance or estate tax. An inheritance tax is a tax that some states charge when someone inherits money or property from someone who has passed away.

Does Indiana Have an Inheritance Tax?

The simple answer is no. Indiana abolished its inheritance tax in 2013. While there's no state-level inheritance tax in Indiana to worry about, there are other implications to consider.

Previously, inheriting property or money might have incurred taxes based on your relationship to the deceased and the inheritance's value. You won't owe state inheritance tax if you're inheriting from an Indiana resident. This simplifies the process and eases financial strain during a challenging time.

What About Indiana Estate Taxes?

There is no Indiana estate tax, but residents should understand federal estate taxes. Unlike inheritance taxes, which affect recipients, these taxes apply to an estate's total value before distribution to heirs.

The federal government sets an estate tax threshold, which varies each year. Estates valued below this threshold are exempt from federal estate taxes. Estates exceeding the high threshold face significant taxes on the value above it.

Indiana residents planning estates should monitor their value and understand federal estate tax implications. Individuals with a high net worth should work with an estate planning professional to guide them through managing the transfer of wealth.

However, it's important to remember that just because there is no inheritance tax in Indiana doesn't mean there are no taxes on inheritances. Indiana's probate laws still play a role in your estate planning. Understanding these details aids in future planning and asset management. Consider consulting a financial advisor or estate planner for personalized advice.

Other Indiana “Death” Taxes to Keep in Mind

While the Indiana death tax might refer to estate and inheritance tax in Indiana, there are other tax implications to consider.

  • Federal Estate Tax: Determine if your estate might be large enough to owe federal estate tax.
  • Retirement Accounts: Taxes on distributions from IRAs and 401ks, generally taxable to the recipient.
  • Capital Gains Tax: Consider the impact of capital gains tax if your heirs sell inherited property or investments.
  • Gift Tax: Pay attention to annual exclusions and lifetime limits to avoid federal gift tax when giving.
  • Jointly Owned Property: Review how jointly owned property will transfer and any tax implications.
  • Life Insurance: Life insurance proceeds are usually tax-free for beneficiaries, but plan ownership may impact estate taxes.
  • Charitable Donations: Contributions to qualified charities can reduce the overall taxable estate.

Notepad with phrase Inheritance Tax, calculator and keys with house shaped key chain

What You Need to Know About Indiana Probate Laws

When someone dies in Indiana, their estate typically undergoes probate. This legal process distributes the deceased's property according to their will or state laws if no will exists. Probate can be a long, tedious process, but it isn’t inherently bad. However, it can be expensive, so it diminishes the value of an estate, leaving less for your beneficiaries.

Probate involves validating the deceased's will or, if none exists, distributing assets according to state law. The process includes settling debts and allocating remaining assets to beneficiaries.

The process takes time, especially for large or complex estates.

The court appoints an executor to manage the estate, gather assets, pay debts and taxes, and distribute the remaining assets to heirs. To ease probate for your heirs, maintain a clear, updated will. Simplify your estate by using living trusts, naming beneficiaries on accounts and insurance policies, and owning property jointly. These methods can help bypass probate entirely.

Probate is also a public process, meaning all documentation is open to anyone. You may want privacy in how your estate is divided and distributed among your loved ones.

How to Reduce Inheritance and Estate Taxes

Estate planning ensures your assets are distributed according to your wishes after death. Here are some effective strategies to consider that can help you ensure your legacy lives on without unnecessary complications.

  • Create a will. Estate planning begins with creating a will specifying how your assets should be distributed. Without one, state laws dictate asset allocation, potentially against your wishes.
  • Set up trusts. Trusts are practical tools for asset management during life and after death. They help heirs avoid probate, saving time and money. For large estates, trusts can also assist in managing federal estate taxes.
  • Name beneficiaries on your accounts. Clearly naming beneficiaries on accounts like life insurance policies, retirement accounts, and even some bank accounts can allow these assets to bypass the probate process entirely. Make sure these are up to date because named beneficiary designations override wills.
  • Consider joint ownership for property. If you own property jointly with someone else, such as a spouse, with the right of survivorship, the ownership of the property automatically transfers to the surviving owner without going through probate.
  • Give gifts and make charitable donations. Giving gifts while alive can reduce your estate size and potential tax burden, allowing beneficiaries to enjoy their inheritances earlier. However, annual gift limits exist to avoid tax consequences, so manage this strategy carefully.
  • Consult estate planning professionals and financial advisors. A key strategy is collaborating with professionals. Estate planners, financial advisors, and attorneys provide tailored advice for your unique situation, helping you navigate complex issues and make optimal decisions for your estate.

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Tax loss harvesting is a strategy that may help minimize the amount of current taxes you have to pay on your investments by choosing to sell an investment at a loss. It is only appropriate for certain taxpayers in certain scenarios. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor before attempting a tax loss harvesting strategy.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.

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