House File 629 - Introduced HOUSE FILE 629 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 511) (SUCCESSOR TO HSB 166) A BILL FOR An Act exempting certain individuals from the inheritance tax, 1 and including applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1880HZ (3) 85 da/sc

H.F. 629 Section 1. Section 450.1, subsection 1, paragraph d, Code 1 2013, is amended to read as follows: 2 d. “Real estate or real “Real estate” or “real property” for 3 the purpose of appraisal under this chapter means real estate 4 which is the land and appurtenances, including structures 5 affixed thereto. 6 Sec. 2. Section 450.1, subsection 1, paragraph e, Code 2013, 7 is amended by striking the paragraph. 8 Sec. 3. NEW SECTION . 450.1A Certain family relationships 9 determined. 10 For purposes of this chapter, a stepchild, step grandchild, 11 or step great-grandchild is determined as follows: 12 1. A stepchild is the child of the spouse of the decedent, 13 if the spouse was married to the decedent at the time of the 14 decedent’s death or the spouse died during that marriage. 15 2. A step grandchild is the child of the spouse of the 16 decedent’s child, if the spouse was married to the decedent’s 17 child at the time of the decedent’s death or the spouse died 18 during that marriage. 19 3. A step great-grandchild is a child of the spouse of 20 the decedent’s grandchild, if the spouse was married to the 21 decedent’s grandchild at the time of the decedent’s death or 22 the spouse died during that marriage. 23 Sec. 4. Section 450.7, subsection 1, paragraph a, Code 2013, 24 is amended to read as follows: 25 a. The share of the estate passing to the surviving spouse, 26 and parents, grandparents, great-grandparents, and other lineal 27 ascendants, children including legally adopted children and 28 biological children entitled to inherit under the laws of this 29 state, stepchildren, and grandchildren, step grandchildren, 30 great-grandchildren, step great-grandchildren, and other lineal 31 descendants is excluded from taxation under this chapter . 32 Sec. 5. Section 450.9, Code 2013, is amended to read as 33 follows: 34 450.9 Individual exemptions. 35 -1- LSB 1880HZ (3) 85 da/sc 1/ 4

H.F. 629 In computing the tax on the net estate, the entire 1 amount of property, interest in property, and income 2 passing to the surviving spouse, and parents, grandparents, 3 great-grandparents, and other lineal ascendants, children 4 including legally adopted children and biological children 5 entitled to inherit under the laws of this state, stepchildren, 6 and grandchildren, step grandchildren, great-grandchildren, 7 step great-grandchildren, and other lineal descendants are 8 exempt from tax. 9 Sec. 6. Section 450.10, subsection 1, Code 2013, is amended 10 by striking the subsection and inserting in lieu thereof the 11 following: 12 1. When the property or any interest in the property, or 13 income from the property, taxable under the provisions of this 14 chapter, passes to an individual not included in subsection 6, 15 the rate of tax imposed under this chapter on the individual 16 share so passing shall be ten percent for any amount in excess 17 of two million dollars. 18 Sec. 7. Section 450.10, subsection 2, Code 2013, is amended 19 by striking the subsection. 20 Sec. 8. Section 450.10, subsection 6, Code 2013, is amended 21 to read as follows: 22 6. Property, interest in property, or income passing 23 to the surviving spouse, and parents, grandparents, 24 great-grandparents, and other lineal ascendants, children 25 including legally adopted children and biological children 26 entitled to inherit under the laws of this state, stepchildren, 27 and grandchildren, step grandchildren, great-grandchildren, 28 step great-grandchildren, and other lineal descendants, is not 29 taxable under this section . 30 Sec. 9. APPLICABILITY. This Act applies to the estates of 31 decedents dying on or after July 1, 2013. 32 EXPLANATION 33 BACKGROUND —— IMPOSITION OF INHERITANCE TAX. Code chapter 34 450 imposes an inheritance tax on real estate and tangible 35 -2- LSB 1880HZ (3) 85 da/sc 2/ 4

H.F. 629 personal property owned by a decedent and located in this state 1 regardless of whether the decedent is domiciled in this state, 2 and intangible personal property owned by a decedent domiciled 3 in this state regardless of where the property is located (Code 4 section 450.2). The value of the estate is determined after 5 liabilities are subtracted from the estate’s gross value (Code 6 section 450.12). No tax is due if the value of the estate of a 7 decedent is less than $25,000 (Code section 450.4(1)). The tax 8 is imposed on beneficiaries taking by will or without a will 9 by intestate succession. 10 BACKGROUND —— TAX EXEMPTIONS AND SCHEDULED TAX RATES. Code 11 chapter 450 exempts property passing to certain beneficiaries, 12 including the decedent’s spouse, parent, grandparent, 13 great-grandparent, other lineal ascendant, children, 14 stepchildren, grandchildren, great-grandchildren, and other 15 lineal descendants (Code sections 450.9 and 450.10(6)). A 16 stepchild is defined to mean the child of an individual who was 17 married to the decedent at the time of the decedent’s death 18 or the child of a person to whom the decedent was married 19 and who died during the marriage (Code section 450.1(1)). 20 For individuals, two tax rate schedules apply based on the 21 beneficiary’s degree of relationship to the decedent. One 22 schedule applies to property passing to the decedent’s brother 23 or sister or son-in-law or daughter-in-law. Under this 24 schedule, the tax rate increases from 5 percent for a share 25 amount equaling up to $12,500 to 10 percent for that portion of 26 a share amount in excess of $150,000 (Code section 450.10(1)). 27 Another schedule applies to property passing to all other 28 individuals, such as an uncle or aunt, nephew or niece, cousin, 29 or anyone else (e.g., a neighbor). Under this schedule, the 30 tax rate increases from 10 percent for a share amount up to 31 $50,000 to 15 percent for that portion of a share amount in 32 excess of $100,000 (Code section 450.10(2)). 33 BILL —— EXEMPTION EXTENDED TO CERTAIN STEP FAMILY MEMBERS 34 AND REPLACEMENT OF RATE SCHEDULES WITH A SINGLE RATE. The 35 -3- LSB 1880HZ (3) 85 da/sc 3/ 4

H.F. 629 bill provides that the family exemption is extended to step 1 grandchildren and step great-grandchildren. It defines a step 2 grandchild and a step great-grandchild based on the definition 3 of stepchild. The bill also replaces the two rate schedules 4 with a single rate of 10 percent when an individual’s share 5 exceeds $2 million. 6 -4- LSB 1880HZ (3) 85 da/sc 4/ 4