Iowa Administrative Code › Agency 701 - Revenue Department › Title X - Inheritance Tax › Chapter 900 - Inheritance Tax › Rule 701-900.14 - Computation of Shares

Current through Register Vol. 47, No. 3, July 24, 2024
The following areas of the law should be applied when
				  computing the shares of an estate for the purpose of Iowa inheritance
				  tax:
(1)
Right to take against
				the will.
In the event that a decedent dies with a will, a surviving
				spouse may elect to take against the will and receive a statutory share in real
				and personal property of the decedent as designated by statute. If a surviving
				spouse elects to take against the will, this election nullifies gifts to the
				surviving spouse set forth in the decedent's will. For details regarding this
				election and statutory share, see Iowa Code sections
				633.236 to
				633.259 and
In the
				Matter of Campbell,
319 N.W.2d 275, 277 (Iowa 1982).
(2)
Family settlements.
Beneficiaries of an estate may contract to divide real or personal property of
				the estate, or both, in a manner contrary to the will of the decedent. The
				court of competent jurisdiction may approve the settlement contract of the
				beneficiaries. However, the department is not a party to the contract and is
				not bound to compute the shares of the estate based on the settlement contract.
				Instead, the department must compute the shares of the estate based upon the
				terms of the decedent's will, unless a court of competent jurisdiction
				determines that the will should be set aside. See
In re Estate of
				Bliven,
236 N.W.2d 366 (Iowa 1975).
(3)
Order of abatement.
Shares to be received by the beneficiaries of an estate are subject to
				abatement for the payment of debts, charges, federal and state estate taxes in
				the order as provided in Iowa Code section
				633.436.
(4)
Contrary order of
				abatement.
An order of abatement contrary to that provided in Iowa
				Code section 633.436 is provided by statute.
				For instance, if a provision of a will, trust or other testamentary instrument
				explicitly directs an order of abatement contrary to Iowa Code section
				633.436 or a court of competent
				jurisdiction determines order of abatement due to a devise that would result in
				an order of abatement contrary to Iowa Code section
				633.436, then the order of
				abatement indicated is to be followed. For additional information regarding
				contrary provisions of abatement, see Iowa Code section
				633.437. For details regarding
				marital share and contrary order of abatement see,
Estate of Lois C.
				Olin
, Docket No. 92-70-1-0437, Letter of Findings (June
				1993).
(5)
"Stepped-up"
				basis.
If a decedent's will provides that taxes are to be paid from
				the residue of the estate and not the respective beneficial shares, a
				"stepped-up" basis will be utilized when computing the shares which will result
				in the appropriate beneficiaries' shares to include the tax obligation that was
				paid as an additional inheritance. A "stepped-up" basis is based on gifts prior
				to the residual share; shares paid out of the residue are not stepped-up.
EXAMPLE: Decedent's will gives $1,000 to a nephew and directs
				  that the inheritance tax on this bequest be paid from the residue of the
				  estate. The stepped-up share is computed as follows:
Tax: $1,000 x 10% = $100. Divide the tax by the difference
				  between the tax rate and 100 percent (90 percent in this example): $100 divided
				  by 90% = $111.11. Add the stepped-up tax of $111.11 to the original bequest of
				  $1,000. This results in a stepped-up share of $1,111.11, which allows the
				  nephew to keep $1,000 after the tax is paid.
(6)
Antilapse provision and the
				exception to the antilapse statute.
Iowa Code sections
				633.273 and 633.274 set forth
				guidance on the allocation of property in situations in which a lapse in
				inheritance may occur. Iowa Code section
				633.273 provides that when a
				devisee predeceases a testator, the issue of the devisee inherits the property,
				per stirpes, unless from the terms of the will, the intent is clear and
				explicit to the contrary. However, Iowa Code section
				633.274 is an exception to Iowa
				Code section 633.273. If the spouse of the
				testator predeceases the testator, the inheritance shall lapse, unless the
				terms of the will clearly and explicitly provide to the contrary. For details
				regarding the provisions, please see the cited statutes.
(7)
Disclaimer.
A person who
				is to succeed to real or personal property may refuse to take the property by
				executing a binding disclaimer which relates back to the date of transfer.
				Unless the transferor of the property has otherwise provided, disclaimed
				property passes as if the disclaimant has predeceased the transferor. To be
				valid, a disclaimer must be in writing and state the property, interest or
				right being disclaimed, the extent the property, right, or interest is being
				disclaimed, and be signed and acknowledged by the disclaimant. The disclaimer
				must be received by the transferor or the transferor's fiduciary not later than
				nine months after the later of the date in which the property, interest or
				right being disclaimed was transferred or the date the disclaimant reaches 18
				years of age. A disclaimer is irrevocable from the date of its receipt by the
				transferor or the transferor's fiduciary. For additional details regarding
				disclaimers, please see Iowa Code Supplement chapter 633E.
Effective for estates with decedents dying on or after July
				  1, 2004, disclaimers are to be filed in compliance with the Iowa uniform
				  disclaimer Act, Iowa Code Supplement chapter 633E. This Act sets forth new
				  requirements for valid disclaimers. Criteria will be based on the type of
				  property or the interest being disclaimed. General criteria for disclaimers
				  have not changed. To be valid, a disclaimer must be in writing or be stored in
				  electronic record or other medium that is retrievable, declare the disclaimer,
				  describe the interest or power disclaimed, be signed by the person making the
				  disclaimer, and be filed. A partial disclaimer may be expressed as a fraction,
				  percentage, monetary amount, term of years, limitation of a power, or any other
				  interest in property of the estate.
A disclaimer becomes irrevocable when it is delivered, filed,
				  or when it becomes effective, whichever occurs later. Delivery of a disclaimer
				  may generally be made by personal delivery, first-class mail, or any other
				  method likely to result in its receipt. However, specific interests being
				  disclaimed require specific means of delivery. For explicit information
				  regarding delivery of a disclaimer based on interest being disclaimed, see Iowa
				  Code Supplement section
				  633E.12.
(8)
Right of retainer.
If a
				distributee of an estate is indebted to the estate, whether the decedent dies
				testate or intestate, the personal representative has the right to offset the
				distributee's share in the estate against the amount owed to the estate by the
				distributee. For additional information regarding this right of offset and
				retainer, see Iowa Code section
				633.471.
(9)
Deferred life estates and
				remainder interest.
a. A deferred
				estate generally occurs as the result of a decedent granting a life estate in
				property to one person with the remainder of the property to another. In such
				cases, the determination of the tax on the remainder interest to be received by
				the remainderman may be deferred until the determination of the previous life
				estate pursuant to Iowa Code section
				450.46. Tax on a remainder
				interest that has been deferred is valued pursuant to Iowa Code section
				450.37, with no reduction based
				on the previous life estate. Tax due on a deferred interest must be paid before
				the last day of the ninth month from the date of the death of the life tenant
				pursuant to Iowa Code section
				450.46. Penalties and interest
				are not imposed if the tax is paid before the last day of the ninth month from
				the date of the death of the life tenant. If the death of the decedent occurred
				before July 1, 1981, the tax due on a deferred interest must be paid before the
				last day of the twelfth month from the date of the death of the life tenant.
				Deferment may be elected due to the fact that the remainder interest is
				contingent and because the value of the remainder interest may be significantly
				altered from the time of the decedent's death until the death of the life
				tenant. A request for deferment may be made on a completed department form, and
				the completed form, with any required documentation, may be filed with the
				department on or before the due date of the inheritance tax return. Failure to
				file a completed department form requesting a deferral of tax on the remainder
				interest with the inheritance tax return will allow the department to provide
				an automatic deferral for qualifying remainder interests.
b. If deferral is chosen, an inheritance tax
				clearance cannot be issued for the estate. Expenses cannot be used to offset
				the value of the deferred remainder interest. Based upon Iowa Code section
				450.12, deductible expenses must be expenses paid by the estate. Expenses
				incurred by a deferred remainder interest would not qualify based on Iowa Code
				section 450.12 as deductible expenses.
				Pursuant to Iowa Code section
				450.52, the owner of a deferred
				remainder interest may choose to pay the tax on the present value of the
				remainder interest and have the lien on such an interest removed prior to the
				termination of the previous life estate. If early termination of the deferred
				remainder interest occurs, the value of the remainder interest will be reduced
				by the value of remaining previous life estate.
c. If the tax on an estate is deferred, a
				bond may have to be filed with the proper clerk of the district court. This
				bond must remain effective until the tax on the deferred estate is paid.
				Failure to maintain or properly renew the bond will result in the bond's being
				declared forfeited, and the amount collected. For additional details regarding
				obtaining a bond, see Iowa Code sections
				450.49 and
				450.50. The estate may secure
				payment of the deferred tax by providing other security in lieu of a bond,
				including but not limited to securities named in Iowa Code section
				450.48(2)  and
				securities deemed satisfactory by the department.