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Change in Indiana Inheritance Tax Law

Three significant changes were recently made to Indiana Inheritance Tax laws:  (i) increases the exemption amount “Class A” recipients can receive from a decedent before inheritance tax is assessed; (ii) expands the definition of the “Class A” recipients; and (iii) begins a gradual phase-out of Indiana inheritance tax over a 9-year period.  These changes are retroactively effective for individuals passing away after December 31, 2011.

Indiana inheritance tax is based on the recipient’s relationship to the decedent and the amount inherited by the recipient.  Recipients are separated into “Classes”; an exemption is applied to the total amount received by the recipient, with all amounts over the exemption amount subject to tax.  The rates are graduated based on amount being transferred and the rates are different for each Class.

With the exception of a surviving spouse, for which all transfers are 100% exempt, Class A recipients receive the highest exemption and have the lowest rates.  Class A recipients include children, grandchildren, parents, and grandparents, as well as now include the surviving spouses of children and grandchildren.  The exemption for Class A recipients has been increased from $100,000 to $250,000.  The tax rate ranges from 1% to 10% for Class A recipients.

The exemption for Class B recipients (brothers, sisters, nieces and nephews) remains at $500, with the tax rate ranging from 7% to 15%.  Class C recipients (aunts, uncles, cousins, friends and others) have a $100 exemption and have the highest tax rate, ranging from 10% to 20%.

The phase out of inheritance tax will commence in 2013 with a 10% credit being applied.  The credit will increase in 10% increments each year for individuals passing away in a particular calendar year, until the Indiana inheritance tax is repealed in 2022.

For more information concerning Wills, Trusts and Probate, or how you may be impacted by changes to Indiana’s Inheritance Tax laws, please contact one of the attorneys who are part of our Estate Planning & Probate Administration Team.