(ABC) South Dakota does not levy either an estate tax or an inheritance tax. However, there are other South Dakota inheritance laws of which residents should be aware, including rules governing intestate succession, probate, what makes a will valid and more.
Does South Dakota Have an Inheritance Tax or Estate Tax?
The Mount Rushmore State does not have an inheritance tax. But, if you inherit an estate from someone who lived in or owned property in a state that does, such as Iowa or Kentucky, then you may still have to pay the inheritance tax.
It also does not have an estate tax. However, the federal estate tax kicks in if an inherited estate is more than $11.58 million in 2020. But this tax is only levied on the overage of an estate—in other words, the amount more than $11.58 million someone leaves behind. But the rate can be as much as 40%.
While estate and inheritance taxes are similar, there are some important differences to note. Estate taxes are taken out of the deceased’s estate immediately after their passing, earning them the nickname of the “death tax.” Inheritance taxes are imposed upon the deceased’s heirs after they have received their inheritance.
South Dakota also does not levy the gift tax, but the federal gift tax applies on gifts totaling more than $15,000 in one calendar year.
Aside from inheritance and estate taxes, South Dakota is generally a tax friendly state. The state does not tax Social Security or pension withdrawals, and does not have an income tax.
Other Necessary Tax Filings
- Inheritance tax from another state — If you inherit assets from someone who either lived in a state or owned property in a state that levies an inheritance tax, you may be responsible for paying them—even though South Dakota does not impart them.
- Federal estate tax—The federal estate tax is applied if an inherited estate tops out at more than $11.58 million in 2020. This tax only applies to the overage, but the rate can top out at 40%.
Dying With a Will in South Dakota
If you die with a valid will and last testament in South Dakota (know as “dying testate”), it will give you the most control over to whom and how your assets are distributed after you die. Your will supersedes the state’s intestacy laws.
But die intestate, or without a valid will and last testament, and your assets are at the mercy of your state’s succession laws, and may even have to pass through the probate process. While sometimes necessary, the probate process can be lengthy and expensive so it’s usually best to avoid it.
Wondering about the requirements for a valid will in South Dakota? First, the testator, or person creating the will, must be at least 18 years old and of sound mind, must be signed by the testator and two witnesses must be in writing and must declare a beneficiary. Also important to note: South Dakota does legally recognize handwritten wills, but it must be in the testator’s handwriting.
However, it is possible to skip probate in South Dakota if the entire value of an estate is less than $50,000. In that case, the estate would pass through what’s called a simplified probate process.
Generally, probate takes one of three paths in South Dakota – informal probate, which takes place outside the court and is used when there are no disputes anticipated; unsupervised formal probate, in which part of the settling of the estate is supervised by the courts; and last, supervised formal probate, in which the entire probate process is overseen by the court.
Some types of property skip probate altogether under South Dakota law. These include joint tenancy assets, when an asset is jointly owned and passes along to the surviving owner in the event of death, community property where the asset passes on to the surviving spouse and accounts with named beneficiaries, such as retirement accounts and life insurance policies.
South Dakota adheres to the Uniform Probate Code, a standardized set of probate procedures used across 15 states.
Dying Without a Will in South Dakota
As mentioned, dying with a valid will and last testament gives you the most control over how your estate is settled upon your death. But if you die without a valid will in place, the distribution of your assets are subject to the state’s succession laws, plus the state’s probate process.
Usually, dying intestate in South Dakota means your estate goes to your closest living relatives, but who gets what depends on who you leave behind – a spouse, children with the spouse, children with someone other than your spouse, parents, even siblings.
Spouses in South Dakota Inheritance Law
Spouses will generally be entitled to a large share of your intestate property if you die without a will in South Dakota. However, the number of children you have and with whom can affect that amount.
For example, if you die intestate and leave behind a spouse and no children, your spouse gets everything. Die and leave behind a spouse and children with that spouse, and your spouse inherits everything.
But if you leave behind a spouse, and at least one child with someone other than that spouse, your spouse gets the first $100,000 of your intestate property, and then splits the remainder with the children.
Children in South Dakota Inheritance Law
Your children are also likely entitled to a portion of your intestate assets in South Dakota. But again, this depends on who else is still in the picture. For example, if you die without a will and leave behind children but no spouse, they get everything.
But die intestate and leave behind a spouse and children with that spouse, your spouse gets everything. However, if you die without a will and leave behind a spouse and at least one child with someone other than that spouse, your spouse gets the first $100,000 of your intestate property, plus 1/2 of the rest, while your children get the rest.
Children must be legally recognized by the state of South Dakota in order to receive their share of your estate, however. This means they have to be legally adopted, born within marriage, or born outside of marriage if a marriage later occurred or paternity was established. Grandchildren are also eligible to receive a share.
Intestate Succession: Spouses and Children Inheritance Situation Who Inherits Your Property Spouse, but no children or living parents Entire estate to spouse Spouse and children with that spouse Spouse gets everything Spouse and at least one child with someone other than spouse Spouse gets the first $100,000 of your estate, plus ½ of the rest, children get the remainder.
Unmarried Individuals Without Children in South Dakota Inheritance Law
If you die intestate in South Dakota without a spouse but you have children, then your estate goes to your children in equal shares.
If you don’t have children, then your entire estate goes to your parents, if they are living. If you don’t have surviving parents, then your siblings inherit everything.
It’s important to remember that these succession laws are only enacted in the case of an intestate estate. If you have a valid will and last testament, it will supersede your state’s succession law.
Intestate Succession: Extended Family Inheritance Situation Who Inherits Your Property Children, but unmarried Entire estate to children Parents, but no spouse, children, or siblings Entire estate to parents Parents are deceased, and no spouse or children Entire estate goes to siblings.
Non-Probate South Dakota Inheritances
You might want to know how to avoid the probate process in South Dakota, since it can be difficult and expensive. Some of the assets that do not have to go through probate and instead go directly to the beneficiaries are listed below.
- Any property in a living trust
- Life insurance policies
- 401(k)s, IRAs, other retirement accounts
- Securities in transfer-on-death accounts
- Vehicles in a transfer-on-death deed
- Pay-on-death bank accounts
- Joint tenancy real property
Other Situations in South Dakota Inheritance Law
As with many state laws, there are some unique inheritance laws in South Dakota. For one, the survivorship period dictates that in order to inherit their share of your intestate property, an heir must live 120 hours longer than you. Additionally, half relatives are treated the same way under the law as whole relatives, and a potential heir’s immigration status has no bearing on whether they are able to accept their share of your intestate property.
Resources for Estate Planning
Managing your own estate, or figuring out what to do with an inheritance, can get complicated. That’s why many people choose to work with a professional.
