Inheritance windfall/High assets - LOW income

dt123
Sun, 18 May 2008 23:15:04 +0000

The confusion stems from the fact that inheritances are excluded from the income tax, not because they are not income, but because Congress chose to tax inheritances under a different tax system, the estate tax. Gifts are similar, they are income excluded from income tax, but taxed under the gift tax system. So it is easy to fuzzify the thinking to conclude that FA forms do not include gifts and inheritances as income. The FA forms, however, make no exclusion of inheritances or gifts from income. It is oh-so-tempting to reach for the straw that seemingly allows you to ignore the inheritance for FA.

Note an inheritance is a form of gift, sometimes also called a bequest. The gift is executed by the administrator or executor of the estate, per the instructions of the will.