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Estate Planning: Unmarried Couples, Continued…

In a previous article, I discussed estate planning for unmarried couples. Remember unmarried couples are not just same-sex couples. Unmarried couples also include young couples who aren’t ready for marriage, couples where one or both have been divorced and are wary of getting married again, and elderly couples who for financial reasons do not want to get married.

In the last issue, I discussed practical issues such as making medical decisions for each other, sharing a residence and naming who is in charge of your remains. In this article, I am discussing how Iowa inheritance tax must be paid if one member of the unmarried couple inherits from the other.

Iowa inheritance tax is based upon a person’s right to receive money or property which was owned by the decedent at the date of death. If one member of an unmarried couple dies, the other member may inherit property under a will or trust, or distribution of property as the beneficiary of a life insurance policy, annuity or retirement plan. Also, if both hold real estate or bank accounts or other investments as Joint Tenants With Right Of Survivorship (JTWROS), the surviving member is presumed to have inherited 50% of the real estate, bank accounts or other investments unless the surviving member can establish that he or she contributed more than 50% to the purchase of the asset.

EXAMPLE: Joe Smith died. He was not married but is survived by his long-time girlfriend, Sue Jones. At the time of his death, Joe and Sue owned their home as Joint Tenants With Right Of Survivorship. They also had a joint bank account. Both of these assets pass immediately to Sue upon Joe’s death. Joe also had an annuity which listed Sue as his beneficiary. The annuity passes to Sue upon her completing the claim form and providing a death certificate and any other requested documents.

All of these assets passed or were distributed to Sue without going through probate. Sue inherited, for Iowa inheritance tax purposes, the following:

  • 50%* of the home, valued at $230,000
  • 50%* of their joint checking account, with a balance of $4,000
  • $250,000 as the beneficiary of an annuity

*Sue could argue that she, and not Joe, contributed more than 50% to the value and that the amount subject to Iowa inheritance tax is less than 50%.

Therefore, the total that Sue inherited is $367,000. The Iowa inheritance tax due by Sue will be $50,050. Everything she inherited above $100,000 was taxed at a 15% rate.

By contrast, if Joe Smith and Sue Jones were married at the time of his death, there would have been no inheritance tax.

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