Adults in Indiana with sizable personal resources often expect their holdings to transfer to the beneficiaries they select, including family members, close friends and charitable organizations. However, probate laws in Indiana allow outside parties with an interest in an estate to lay claim to resources before they transfer to someone’s chosen beneficiaries.
Creditors owed money by a decedent can make estate claims that a personal representative must pay before they transfer any property to beneficiaries. There could also be tax obligations that a personal representative of an estate must fulfill or risk personal liability for failing to do so. Someone who dies might owe income taxes, and their estate could also have income tax obligations. Those financial responsibilities are usually relatively low.
Estate taxes, on the other hand, could significantly reduce the overall value of the property that transfers to someone’s beneficiaries after they die. Careful planning prior to someone’s passing is typically the only way of reducing or eliminating estate tax obligations.
Indiana does not collect an estate tax
There are both state and federal taxes that can apply to an estate after someone dies. The good news for Indiana residents and their family members is that the state itself does not currently collect an estate tax. Regardless of how much property someone owns and transfers to their loved ones after their death, they do not need to worry about the Indiana government demanding a portion of their resources.
Unfortunately, federal estate taxes can substantially diminish the value of an estate. There is a threshold established by federal lawmakers. Estates worth less than the current threshold at the time of someone’s death are not subject to estate taxes, but those with a higher value generally are.
The current limit for an estate’s value in 2024 is $13.61 million. Estates worth more than that could be at risk of costly estate taxes. The lowest federal estate tax rate is 18%. The highest applicable tax rate is 40%. The personal representative of an Indiana estate has to pay those taxes before distributing the remaining estate resources to someone’s chosen beneficiaries.
Advance planning to diminish the overall value of an estate is the most effective way of avoiding estate taxes or limiting how much an estate must pay to the federal government. Some people make strategic gifts to family members and charitable causes annually to diminish their holdings. Others move resources into trusts so that they do not become part of their estate and lead to estate taxes.
A thorough review of personal holdings can help those drafting or updating estate planning documents determine if they need to address estate taxes. Thinking about potential liabilities ahead of time allows an Indiana testator to maximize the impact their legacy has on others.