Good news: Indiana estate tax is one of the friendliest tax situations in the country. Unlike many states, Indiana doesn’t impose a state-level estate tax or inheritance tax on your beneficiaries. However, understanding federal estate taxes and proper planning remains crucial for Indiana residents with substantial assets.
Table of Contents
- Indiana Has No State Estate Tax
- Understanding Federal Estate Tax
- 2024 Exemption Amounts
- Spousal Portability Benefits
- Strategic Gifting for Tax Savings
- Trusts and Estate Planning Tools
- Getting an Estate Tax ID
- How Indiana Compares to Other States
- Frequently Asked Questions
- Final Thoughts on Estate Planning
Indiana Has No State Estate Tax
Let’s start with the silver lining: Indiana residents don’t owe state estate taxes. This is a massive advantage compared to states like Washington, which recently reinstated a 20% estate tax on estates exceeding $2.193 million. Indiana repealed its inheritance tax back in 1969, and there’s been no state-level estate tax since then.
This means when you pass away, your Indiana-based assets won’t face an additional state tax burden on top of federal obligations. Your heirs won’t receive a bill from the Indiana Department of Revenue for inheriting your home, investments, or business. That’s genuinely favorable planning territory.
However—and this is important—Indiana residents with significant wealth still need to plan for federal estate taxes. The federal government doesn’t care that Indiana is tax-friendly. The IRS will absolutely collect if your estate exceeds the federal exemption threshold.
Understanding Federal Estate Tax
Federal estate tax applies to the total value of your estate when you die. This includes real estate, investments, retirement accounts, life insurance proceeds, business interests, and personal property. The IRS treats your entire estate as a single taxable unit, regardless of where you live.
The federal estate tax rate is a flat 40% on amounts exceeding your exemption. That’s steep. A $5 million estate with a $3 million exemption would face $800,000 in federal taxes (40% × $2 million). For Indiana families with significant assets—think successful business owners, real estate investors, or retirees with substantial investment portfolios—this is a real threat.
The good news? The federal exemption is currently quite generous. But it’s temporary. Congress set current exemption levels to expire after 2025, which means you’re operating under a sunset provision. Planning now, while exemptions are high, is smart strategy.
2024 Exemption Amounts
For 2024, the federal estate tax exemption is $13.61 million per person (adjusted for inflation annually). For married couples, that’s potentially $27.22 million if both spouses properly plan using portability.
Here’s what that means in practical terms: If your estate is under $13.61 million, you owe zero federal estate tax. If you’re married and your combined estate is under $27.22 million, you’re also clear—assuming you structure things correctly.
But here’s the catch: These exemption amounts are scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026. Congress hasn’t extended the current high exemptions, so unless legislation changes, you’re looking at a significant reduction. This creates urgency for high-net-worth Indiana families to implement strategies now while exemptions are elevated.
Many CPAs and estate planning attorneys recommend aggressive gifting and trust strategies before 2026. You can lock in current exemptions by making strategic gifts or creating irrevocable trusts before the deadline.
Spousal Portability Benefits
If you’re married, portability is your friend. Portability allows a surviving spouse to use the deceased spouse’s unused exemption amount. This requires filing an estate tax return (Form 706) within nine months of death—even if the estate owes no tax.
Example: John dies in 2024 with a $10 million estate and a $13.61 million exemption. His estate owes no tax. His wife, Sarah, can now use John’s $3.61 million of unused exemption, giving her a total exemption of $17.22 million. When Sarah dies, her estate can be worth up to $17.22 million without owing federal tax.
Without portability election, that $3.61 million exemption would vanish. Sarah would only have her own $13.61 million exemption. Portability is automatic in some cases but requires proper filing to be secure. This is why working with an estate planning attorney is worthwhile—the cost of filing correctly is far less than the tax savings.
Indiana residents should discuss portability with their estate planning team. It’s one of the most valuable and underutilized planning tools available.
Strategic Gifting for Tax Savings
One of the smartest ways to reduce your taxable estate is through strategic gifting during your lifetime. The IRS allows you to give away money and assets without triggering gift tax, as long as you stay within annual and lifetime limits.
For 2024, you can gift up to $18,000 per person per year without filing a gift tax return. If you’re married, that’s $36,000 to each recipient. Over time, these gifts add up. A couple with three adult children could gift $108,000 annually ($36,000 × 3) completely tax-free.
You also have a lifetime gift and estate tax exemption—the same $13.61 million figure mentioned earlier. Gifts count against this exemption. If you gift $100,000 during your lifetime, you’re using $100,000 of your exemption. When you die, your remaining exemption is reduced by that amount.
The strategy? Many high-net-worth Indiana families make annual exclusion gifts ($18,000 per person) to children and grandchildren, gradually moving assets out of their taxable estate. Some also fund irrevocable life insurance trusts or charitable remainder trusts to shift wealth tax-efficiently.
Timing matters. With exemptions dropping in 2026, accelerating gifts now—while exemptions are high—locks in current tax benefits. You can even make 2026 gifts in 2024 if you’re strategic about timing.
Trusts and Estate Planning Tools
Trusts are the backbone of sophisticated estate planning. They allow you to control how assets are distributed, minimize taxes, and avoid probate. For Indiana residents with substantial estates, trusts should be a core component of your plan.
Revocable Living Trusts let you maintain control during your lifetime while avoiding probate at death. Assets in the trust bypass the probate process, saving time and money. However, revocable trusts don’t reduce your taxable estate—assets are still included for estate tax purposes.
Irrevocable Trusts remove assets from your taxable estate permanently. You give up control, but you achieve significant tax savings. Common types include Irrevocable Life Insurance Trusts (ILITs) and Qualified Personal Residence Trusts (QPRTs).
Charitable Trusts allow you to support causes you care about while reducing your taxable estate. A Charitable Remainder Trust (CRT) pays you income during your lifetime, then distributes remaining assets to charity. A Charitable Lead Trust (CLT) does the opposite—charity gets income first, then your heirs receive the remainder.
Dynasty Trusts are increasingly popular in Indiana. These trusts can last for multiple generations, allowing wealth to pass through your children and grandchildren with minimal estate tax at each level. Indiana’s favorable trust laws make it an attractive jurisdiction for establishing dynasty trusts.
When you need to get a tax ID number for an estate, trusts that hold substantial assets will need their own EINs for tax reporting purposes.
Getting an Estate Tax ID
When an estate or trust holds assets and generates income, it needs its own Employer Identification Number (EIN), even if it has no employees. This is true for revocable trusts that become irrevocable at death, as well as standalone irrevocable trusts.
You can apply for an EIN online through the IRS website, by phone, or by mail using Form SS-4. The online process is fastest—you receive your EIN immediately. The executor or trustee applies using the estate’s or trust’s legal name and the date it was established.
Why does this matter? An EIN allows the estate or trust to file its own income tax return (Form 1041) separately from your personal return. This is required if the estate or trust earns more than $600 in taxable income. Proper tax reporting protects the estate from IRS scrutiny and ensures beneficiaries receive accurate tax information.
Many Indiana families overlook this step, creating compliance problems down the road. Get the EIN early—it’s free and takes minutes.
How Indiana Compares to Other States
Indiana’s lack of state estate tax puts it in good company. Most states—37 out of 50—don’t impose estate or inheritance taxes. However, neighboring states tell a different story.
Illinois has no estate tax (though it does have income tax). Ohio has no estate tax. But if you’re near the border with Kentucky or other states, situations vary. Some states like Washington, Oregon, and Illinois have enacted or are considering new estate taxes on high-net-worth individuals.
For comparison, Washington State’s new estate tax applies to estates over $2.193 million at a 20% rate. Maryland’s estate tax applies to estates over $5.75 million (2024). New Jersey taxes estates over $6.94 million. Indiana residents should feel fortunate—there’s no state-level burden here.
However, if you own property in multiple states or have beneficiaries in other states, you may face complications. A property in Florida (no estate tax) combined with assets in a high-tax state creates planning opportunities and challenges. This is where professional guidance becomes invaluable.
Frequently Asked Questions
Does Indiana have an estate tax?
No. Indiana does not impose a state estate tax or inheritance tax. The state eliminated its inheritance tax in 1969. However, Indiana residents may still owe federal estate taxes if their estate exceeds the federal exemption threshold ($13.61 million in 2024).
What happens to my estate if I die without a will in Indiana?
Indiana’s intestacy laws determine how your assets are distributed. Generally, assets pass to your spouse, then children, then parents, then siblings. If you have no relatives, assets go to the state. This is why having a will or trust is important—it ensures your wishes are followed, not the state’s default rules.
Can I avoid probate in Indiana?
Yes. A revocable living trust is the most common way. Assets in the trust bypass probate and transfer directly to beneficiaries. You maintain control during your lifetime, and the trust becomes irrevocable at your death. Indiana also allows small estates (under $40,000 in assets) to use simplified probate procedures.
Is life insurance part of my taxable estate?
Yes, unless it’s held in an Irrevocable Life Insurance Trust (ILIT). Life insurance proceeds are included in your taxable estate, which can push you over the exemption threshold. An ILIT removes the insurance from your estate, providing both liquidity and tax savings for your heirs.
What’s the difference between a will and a trust?
A will is a legal document that directs how your assets are distributed after death. It goes through probate, which is public and can be time-consuming. A trust holds assets during your lifetime and transfers them at death without probate. Trusts are private and often more efficient for larger estates.
Should I be worried about the 2026 exemption sunset?
If your estate is close to $7 million or you expect it to grow, yes. The exemption dropping from $13.61 million to roughly $7 million in 2026 could trigger significant tax liability. Strategic gifting and trust planning now can lock in current exemptions and save your heirs hundreds of thousands of dollars.
How often should I review my estate plan?
At least every three to five years, or whenever major life events occur (marriage, divorce, birth of children, significant asset changes, relocation). Tax law changes frequently. The 2026 exemption sunset is a perfect reason to review your plan now.
Final Thoughts on Estate Planning
Indiana’s lack of state estate tax is genuinely favorable, but don’t let that lull you into complacency. Federal estate taxes are real, exemptions are temporary, and proper planning requires action.
Here’s the bottom line: If your estate is under $7 million, basic planning (will, beneficiary designations, maybe a simple trust) is probably sufficient. If you’re between $7 million and $13.61 million, you should be actively strategizing. If you’re above $13.61 million, sophisticated planning using trusts, gifting, and other tools is essential.
The cost of professional guidance—a few thousand dollars spent with an estate planning attorney and CPA—is trivial compared to the potential tax savings. Your heirs will thank you for planning ahead. And if you’re considering strategies like tax-free retirement accounts or other wealth-building tools, integrating them into a comprehensive estate plan multiplies their benefit.
Don’t wait until 2026 to act. The exemption sunset is coming, and planning windows close. Start the conversation with your financial and legal advisors today.
