Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 86 - Inheritance Tax › Rule 701-86.14 - 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
				633236.
				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
				633436..
(4)
Contrary order of
				abatement.
An order of abatement contrary to that provided in Iowa
				Code section
				633436.
				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
				633436.
				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
				633436.,
				then the order of abatement indicated is to be followed. For additional
				information regarding contrary provisions of abatement, see Iowa Code section
				633437..
				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
				633273. and
				633274.
				set forth guidance on the allocation of property in situations in which a lapse
				in inheritance may occur. Iowa Code section
				633273.
				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
				633274.
				is an exception to Iowa Code section
				633273.. 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
				  633E12..
(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
				633471..
(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
				45046..
				Tax on a remainder interest that has been deferred is valued pursuant to Iowa
				Code section
				45037.,
				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
				45046..
				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 1,19 81, 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
				45012.,
				deductible expenses must be expenses paid by the estate. Expenses incurred by a
				deferred remainder interest would not qualify based on Iowa Code section
				45012. as
				deductible expenses. Pursuant to Iowa Code section
				45052.,
				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
				45049. and
				45050..
				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
				45048(2).
				and securities deemed satisfactory by the department.