Currently my mom has me listed to inherit her entire IRA as her beneficiary, then has told me how she wants it distributed to others (family and friends). Last night we got wondering if there would be extra taxes that way. All “gifts” I make would be under the amount H and I could give to an individual (or divided over two years), but would my getting the significant sum be taxed more than if she contacted the company and tried to change the beneficiaries - at least for those getting larger amounts?
I’m also on all her bank accounts as a joint owner. Am I correct in thinking I’ll take over those with no income tax implications? Or will it count as income for me?
This was not a factor with my dad’s estate, so I’ve no experience.
Not counting her IRA and current bank accounts (savings/checking) her estate will be in the 100K-200K range so that should be easy to file and figure out (she has a will), but her having those accounts gives me new variables and I’m not completely sure how they work.
Since I’m asking… with my dad’s estate… (he already passed away last summer), can I give my sister the house I inherited from him without taxes for either of us? Is that how folks “sell” a house for $1? Or do we still have to pay estimated value taxes on it if I do so?
Tax experts will chime in. Until then, my take is, giftees don’t pay gift tax. It’s on the giver. If the estate is under $11M and you don’t have to worry about the federal estate tax, it’s the state estate/inheritance tax one should pay attention to. What is the NY estate/inheritance tax rate? Is everyone in NY?
I’m not a tax expert but have some experience with this in NY and IL. A decedents IRA passes to you and you have to take RMDs based on her life expectancy and pay taxes just like she would. If there are no records on any non taxable contributions then it’s all taxable to you as you withdraw it. If she wants other beneficiaries on the IRA she should list them otherwise it’s yours. If you are listed as joint tenants with rights of survivorship (JTWROS) on her other accounts they are actually yours now so when she passes give the death certificate to the financial institution and take her name off. This is basic stuff. She needs an estate planner or a family lawyer to set up a Power of Attorney for you, a will and a living will. Basic docs can be also be found online.
Yes, for a matter this huge, I would make an appointment with a CPA and have a long list of questions. You want the backing of a professional before you make such big decisions.
You’ll pay income tax (ordinary rates) on the IRA when received (immediate if received lump sum, stretched out if distributed over time). There won’t be any estate tax based on current law. The recipients of gifts (a gift is during life, not inheriting after death) do not pay taxes on the actual gift. Gift tax is for the “Gifter” but you will fall well below the thresholds. Definitely consult with a tax professional to make sure all your specifics are buttoned up. Always more detail then surface level.
Change the beneficiaries on the IRA or use the cash to make payouts (or a combination of both). Inherited IRAs have special rules. You’ll need to start withdrawing it, but you will pay taxes on the withdrawals. Why do that just to gift the money away?
You don’t have to worry about the joint accounts. It’s already your own money. Legally it’s yours. You don’t have to give it to anyone. But you can distribute as you (or mom) wishes. If it’s a large amount, I would take it out of joint ownership and make it part of a “real” estate plan.
As for the house is you das’s estate still open? If not, any transfer of the house will be a gift. If the estate is still open, you could pass it as part of the estate as a settlement. Your sister would simply challenge the will and you would settle as part of the dispute.
Gift taxes aren’t the big issue here. Income tax is. Unless it’s a Roth then you will be on the hook for all the taxes when the money is withdrawn from the IRA if it’s in your name. IRA s don’t get a step up basis so there will be income taxes.
If Mom wants a certain % to go to certain people then it would be better to change the beneficiaries now then, when the time comes, each beneficiary can decide how they want to take the distributions (there are different options) to best suit their needs. They would then be responsible for their own taxes.
It depends what kind of IRA. Some you can cash in easily and some you can’t without extremely negative tax consequences. It not only depends on the type IRA, but also your individual financial circumstances. You really need to meet with a good accountant. It will be well worth paying for professional advice.
That’s my advice after dealing with half a dozen or more bequeathed IRAs. I’ve also inherited houses and land, then gifted my interest to others.
You need professional advice on the house as well. I remember you had a problem attorney. Most aren’t a problem. There are too many variables in the questions you are asking to get useful internet help. You want to do it correctly to avoid problems later. You run the risk of disadvantaging yourself and others. imho
Mom is nearing the end of her life and not wanting to talk about this much, but at times we get in a good conversation or two. Last night was one of those. Previously I told her it was fine to leave it all to me and I’d deal with it afterward as she wanted (saving her the stress - cancer is stressful enough). I’d still do that if it seems better, but since she asked about the tax implications I told her I’d investigate.
I actually did suggest seeing her lawyer (the one who wrote up her will), but she doesn’t want to “spend more money on that.” She doesn’t have an accountant. We’re in PA and do our own taxes - H does hers too actually. None of us have anything super complicated that online tax software can’t handle. This is literally a once in a lifetime situation.
I will tell her tonight it’s better if she changes the beneficiaries as some of them will most certainly be in a lower tax bracket than we are and will be.
With the house… dad’s estate is still only progressing at a snail’s pace. Sis isn’t even executrix yet since she’s not willing to do it herself and spent months expecting the “old” lawyer to handle it. The new lawyer has just started dealing with it - so maybe in a couple of weeks she can get started. I really don’t care much TBH - hence - wondering if I could just give her his house (that I get in the will) and let her progress as she wants with it all. It’s not a huge amount for a property. It’s assessed at something like 40K, but would likely only sell for 25 - 30K as it really needs to be torn down rather than fixed up. Dad and Sis are both hoarders, so there’s also that to deal with - practically impossible from my POV since she’s currently living in the house. She wasn’t when he was alive. She moved in after his death. I don’t know how “legal” it all is (or isn’t), but I also don’t care, so giving her the house is an attractive option for me. However if I have to pay “assessed value” taxes on the sale I’d rather she cover those than find out afterward when I get the bill.
With the pace dad’s estate is going I fully expect I’ll have mom’s totally finished first - and mom isn’t even gone yet while dad passed away last August… We’re still kind of hoping mom can make it to youngest’s wedding in June, but it’s definitely an unknown.
I just did this with my Dad’s IRA. He recently had a stroke, so I’ve taken over his finances. While visiting with his financial advisor to see what accounts he had with that group, the FA noticed the beneficiary of his IRA was my stepmom, who actually passed away a few years ago. He gave me a form that had spaces to name each beneficiary, and the % he wanted to go to each. I had to put their full legal names, DOB, and their SS numbers, then have him sign it. The FA said as long as the signature matched the others they had on file, it didn’t have to be notarized. I filled it out with the exact % he had wanted according to his will, he looked it over, and signed it.
Not a big deal, and I would absolutely do this in advance. There is no reason not to, and a few reasons why your current plan isn’t the best imo.
PA has a somewhat unusual “inheritance tax”. They collect 4.5% of the value of what you receive if you are a direct lineal descendant. Sibling inheritors get charged 12% of their “windfall”, and friends and the general public have the state take 15% of it. You need to take this into account.
If you are a joint owner on the bank accounts, and you have been for the year prior to your mother’s death, then the inheritance tax will be less. This is because they deem you to own half the account, so they won’t charge the 4.5% on that half, only on the half that your mother owns outright.
Some of the answers you need depend–sort of. If it doesn’t get into larger numbers, the attorney who files the inheritance tax return may feel comfortable giving you some slack on your redistribution plans. If it gets larger, that could be problematic. For instance, your receiving an inheritance that PA takes 4.5% of, and then passing it to a party who would have paid 15% of it had they been named formally.
You might want to spend a couple hundred dollars talking to the attorney about your ideas of what will happen. I think you are likely to have him involved at the time of death anyway, so it might be good to get things squared away ahead of time. It sounds like you don’t know exactly what the current will says, and when death occurs, that will govern. Not what you and mom discussed.
I agree with the comments about US estate and gift taxes being irrelevant in your case. But the PA inheritance tax has a very small exemption (3,000, I believe) and everything over that pays a tax of 4.5% or more depending on who is receiving it and their relationship to the deceased. You can find the form online and look at it to help you understand it.
"you have to take RMDs based on her life expectancy…
Are you sure? Isn’t it based on the heir’s life expectancy?"
I think it was a combination of both and may have depended on whether the decedent was at required RMD age. Bottom line: Seek PROFESSIONAL help.
Not knowing the details, the issue with your Dad’s estate sounds like it may be due to pre-planning issues. Another headache for with your Mom’s estate doesn’t sound fun. Even when you have things set up correctly, when other are involved as beneficiaries (even if they are easy, 100% agreeable and not pain in the rear relatives) it can be a real hassle just sorting through the extra details. Good luck!
I agree-forgot to take into account that state laws vary, so get professional/legal advice. Still, I would want Mom’s wishes IN WRITING in advance so that no one can later say that they were given less than due. You wouldn’t believe how money can tear families apart. Make sure no one can say you didn’t do the right thing.
It’s a combination of both. You need the persons DOB and DOD as well as your DOB and the valuation. There are calculators on the internet (schwab has one) which can tell you the RMD amount.
This is a question for the new lawyer. It would depend on how the house was to be transferred. For the value, I am sure it’s a pretty painless fix. Good luck.
