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Inheritance tax?
bigdaddyjunior
Member Posts: 11,233
Just wondering what to expect for Will concerning his inheritance. It hadn't occured to me as he was plowing through it on fast women and loose cars that he would have a tax bill to pay. I got the letter today that shows no taxes were paid prior to the trust delivering the money to his account. And do you pay the tax on inherited stocks or only on the dividends? And what about land that is inherited?
Big Daddy my heros have always been cowboys,they still are it seems
Big Daddy my heros have always been cowboys,they still are it seems
Comments
There are no bad guns, only bad people.
How much did the trust deliver?
Give an attorney/accountant a call.
On an estate. When the property is appraised, forget inheritance tax and try to get the property appraised as high as possible. Reason is the basis for capital gains tax is established at time of death. Ex: if the house is worth $200,000 at the time of death and by the time you sell it the sales price is $210,000 then whatever amount is left after costs OVER $200,000 you pay capital gains tax on...regardless, what the original buyers (dead folks) paid for it.
Same works for stocks. If the decedants paid $10.00 per share for the stock, but, at the time of death the stock was selling for $50.00, your basis is $50.00 / shr and that's what your cap gains tax line is.
Anything else - call a lawyer...that's all I know.
"the difference between the almost right word and the right word is like the difference between a lightning bug and a lightning bolt" - Mark Twain.
The limit on a tax-free gift is $11,000 per person, per year.
Say you are a couple and have adult children who are married. You can give each couple up to $44,000 per year, tax free.
$11G from Dad to son. $11G from Mom to son. $11G from Dad to daughter-in-law. $11G from Mom to daughter-in-law.
Careful though. In a community property state, such a gift is considered SEPARATE property, so if your kiddos split up, the in-law gets to keep her gifts.
SIG pistol armorer/FFL Dealer/Full time Peace Officer, Moderator of General Discussion Board on Gunbroker. Visit www.gunbroker.com the best gun auction site on the Net! Email davidnunn@texoma.net
When they pry it from my cold dead fingers.
SIG pistol armorer/FFL Dealer/Full time Peace Officer, Moderator of General Discussion Board on Gunbroker. Visit www.gunbroker.com the best gun auction site on the Net! Email davidnunn@texoma.net
Big Daddy my heros have always been cowboys,they still are it seems
I have seen older people give their land and belongings to their married son. Then the son ups and dies of a heart attack. His widow then remarries another guy and neither have any interest in the two old people...who are now poor as dirt.
Money and belongings have weird ways of ending up outside the original family with no way to get it back.
Rafter-S (the ever-cautious)
Big Daddy my heros have always been cowboys,they still are it seems
(a) If the funds came from an estate, the estate / inheritance taxes (after this, just assume the use of either term includes the other . . . a nice little shortcut from law school) *should* have been paid by the executor before any assets were distributed to the beneficiaries, whether directly or to fund a trust. If they were not, then the executor is in VERY deep doo-doo with both the beneficiaries and the tax authorities. Almost a certainty this was done before the Probate Court approved the final distribution, so he should be safe on this account, but do double check. Unless the value of the estate exceeded $650K, no Federal taxes were due, but state laws on estate taxation vary enormously, so you will need to be sure any attorney or accountant advising you is versed in the laws of the state having jurisdiction of the estate.
(b) If there was a trust fund involved, depending on the type and the provisions, taxes may have been paid by the trust or may have flowed through to be a liability to the beneficiary. At the Federal level, these are the standard income and capital gains taxes we all suffer; the state's liability could be handled in any number of ways, depending on the laws of the *beneficiary's* legal domicile.
To answer some of your specific questions, the estate tax is on the value of the deceased's holdings at time of death. This includes interest accrued on bonds which had not yet been paid (very common), dividends declared, but not yet paid, land, cash, FMV of personal belongings, FMV of any securities, etc. . . . in short, anything - and virtually everything - of value. There are some alternative valuation schemes available, particularly on real property, but it sounds as though the estate has been settled, so those options are no longer available even if they could have been used earlier.
Interest and dividends accruing after the DoD but before distribution are handled as income by the estate or by the beneficiary depending on timing issues. These do *not* count toward the value used for the estate tax. Asset sales can result in capital losses or gains in the same way. Obviously, if an estate is at $649,000 and the executor sells an asset for a substantial gain, the basis better be very well documented or the taxman is going to revise the estate value upward. Federal estate tax rates are just plain ugly - doesn't take a lot to jump into a 50% or worse (as I recall) tax bracket on the value above the protected amount.
Anyone can give anyone else up to $10k (perhaps it's now $11K; I've not had to worry about this for some time, unfortunately!) a year, tax free, although a gift tax return should be filed just to make things clear, and especially so if the gift is not cash. This is unlimited, so Bill Gates can give everyone who suffers with Windows $10k a year and not be liable for tax. Gift tax is paid by the giver, not the recipient. The giver can elect to give more, of course, which is taxable. The giver can elect to have that gift count toward the "lifetime exclusion" of $650,000 or to pay the tax, which was the same rate as the estate tax. Gifts to spouses (ONLY! - not children, mistresses or stray cats) can be of any amount and are not taxable; they just become part of the spouse's estate if not consumed before the DoD.
The bottom line is that there are an incredible amount of critical details in this subject area. Anyone who has assets on the order of the lifetime exclusion really should consult with a tax adviser / estate planner. There's a lot which can be done to minimize the amount the government can legally steal and a lot of land mines for anyone not actively involved in the field. To give one example, my mother had a very well designed will written only two or so years before her death. If she had died immediately after signing it, the IRS would not have seen dime one. Well, the laws changed and, in particular, the value of some land skyrocketed without her realizing it. Even with the best damage control we could obtain, the bastids walked away with a six figure check which would have been substantially lower if only the will had been reviewed and revised in that two year period. So just writing a good will won't protect one's beneficiaries if it is not reviewed and updated on a regular basis.
I realize this goes far beyond your original question, but hopefully it will not only answer your specific questions, but help some others ensure their hard-earned assets go to somebody besides wastrels in government.
"There is nothing lower than the human race - except the French." (Mark Twain)
Don't screw around with taxes. Even Al Capone was finally caught by failure to pay the taxes required.
..I've started sending my kids checks of about $10,000 each to get rid of my money before I have to go to a nursing home(if I ever do)...
Iconoclast(and the comments by others) have answered most of the questions raised by BDJ and others, but I just wanted to comment on the above from oldgunner.
One has to be careful about trying to "impoverish" onself inorder to take advantage of Medicare paying for nursing home care. The rules are that the government can go after assets given away in years previous to entry into a nursing home (if I remember correctly, I think they can look back atleast two years). The kids might have to come up with the money that was given to them.
I'd also note that a person can get significantly better quality in nursing home care using their own funds than relying on the government programs to pay for it. If an older person does give to their children; (and assuming the children care about their parents) the children setting that money aside/investing it--as opposed to just "spending" it--would be prudent. It will then be available if the parents need it.
And for those who would say, "why spend your money when you can get the government to pay for it?" in regards to nursing home care in old age--I'd simply comment: Why have you been saving in the first place if not to provide you with the means of support in old age? The old expression "save for a rainy day" applies here--when you need nursing home care, it's raining!