Yesterday Governor Mitch Daniels signed the bill into law that will completely eliminate the Indiana inheritance tax after 2021. Until then, the tax will gradually phase out by applying an increasing credit against any liability.
A higher $250,000 exemption (formerly $100,000) is now available for each Class A beneficiary retroactive to January 1, 2012. Class A beneficiaries typically consist of lineal ancestors and lineal descendants such as a child, grandchild, parent, etc. The new law additionally defines a child’s (or stepchild’s) spouse as a Class A beneficiary to receive this increased exemption. This is a substantial benefit since a daughter-in-law or son-in-law previously only received a Class B beneficiary exemption of $500 and was then subject to more progressive tax rates.
As an example, an individual with two married children can potentially bequeath a $1 million estate free of Indiana inheritance tax ($250,000 to each child and $250,000 to each child’s spouse). Previously, this same estate would have paid approximately $51,000 in Indiana inheritance tax.
This is a significant development in the wealth and estate planning arena, and our wealth planning team continues to monitor details of such activities to evaluate the impact on our clients’ personal wealth plans.