The Iowa Supreme Court has ruled the state Department of Revenue can collect estate taxes from beneficiaries of life insurance policies. The case involved Phillip Tremil, a Harrison County man who died in 1998 and left a life insurance policy with his wife and two minor children as the beneficiaries.
Tremil’s wife chose not to take her interest in the policy and that left just over $516,000 for his two sons. Tremil’s estate owed the state of Iowa around $50,000 in taxes and interest — but the estate had no assets — and the Iowa Department of Revenue went after the money from the insurance policy that had been put into a trust for the two boys.
Attorneys for the boys fought the Revenue Department’s attempt, but lost in district court. The Iowa Court of Appeals however ruled that the insurance policy money was not part of the estate, and not subject to the tax. The Iowa Supreme Court rule the tax law allows the Department of Revenue to interpret the code and the agency’s interpretation may only be overturned if it is “irrational, illogical, or wholly unjustifiable,” and this case does not fit those definitions.
The high court overturned the appeals court ruling and affirmed the district court ruling, allowing the Department of Revenue to collect from the insurance money left to Tremil’s two sons.