Thanks for the suggestions everyone and it’s good to know it’s “only” the tax hit if we can’t change anything. I know four accounts are IRA and two more don’t have IRA listed on them - all with the same company. I’m not sure what those latter two are, nor is H. He just knows about the accounts (name) due to doing her taxes and using the income info from them. We’ll dig into it more next time we’re at her house.
I called mom today and tried to talk to her about it all. She politely listened, but today is not a good day health-wise and she said it was difficult for her to process it all. She’s ok with our calling the company about it together later this month though. In the meantime I suggested she merely try to pinpoint what she wants to do with friends/sis, etc, but I’m not sure she’s up to that sort of thinking either ATM. Hopefully there’s no rush.
I can say I’d trade all the money if it would give her better health - or even just a better “end” than terminal cancer provides. I wish that were an option. I recently read about the Israeli scientist potential breakthrough (just google it if interested - it was all over the news) and wish the time frame fit better (assuming it holds with trials).
@Creekland. Any chance she would give you a financial power of attorney? It would help you do all the work at her direction. That way you could talk to the advisors and present the information to her and then act. Just a thought.
If you do have to pay all the taxes on the IRA withdrawals, you can take that amount off each gift to another person. Say she wants her friend Sally to receive $5000 but through you. You could figure out the taxes you are paying on that amount and give Sally $4000. It’s $4000 Sally would otherwise not receive so she should be happy and it is the same end game as if you transferred $5000 in an IRA and Sally had to pay the taxes. Yes, all those people would be paying your tax rate but sometimes gifts come that way. It sounds like your mother’s estate may not have to be probated if you can get all transfers done by beneficiary or a title transfer upon death.
However, if there really aren’t that many of these smaller gifts, I’d try to withdraw those amounts this year and put them in a ‘holding account’ to disburse at death and then any taxes would be on your mother’s final tax bill (if 2019).
Yes, I could pull taxes out - esp since Sally et al have no idea that they are getting anything or how much - but her friends are doing so much for her when I can’t be there - shoveling her driveway and walk, taking her to appts, picking up things at the store, playing games when she’s able, small trips when she’s able… we’ll take the tax hit. I’ve planned our family budget assuming we get nothing from inheritances. We’re doing ok. I appreciate them more than tax dollars. The idea is for them to be able to do something special for themselves as a gift from mom. They won’t take anything now when she’s alive.
But if we can, her pulling the money out sooner would be better.
I would like to reiterate that if would be very worthwhile for you to sit down with an estate attorney and financial planner /cpa/accountant together at the same table for 1-2 hours while your mother is still alive. Bring your list of questions. Having gone through this with different states involved - believe me - it will save you hours of work in the future. Have them help you set up a road map for every single step that needs to be followed when your mom passes. You especially want legal protection for yourself if I understand correctly that you are randomly distributing money based on your mom’s verbal wishes.
Agree with starting a notebook now. Every day gets a new page. Document every person you speak with, phone and email contacts for them and a synopsis of what you discussed. Invaluable.
Wow, surprised that a poster up thread enjoyed spending one year distributing her mother’s jewelry. I’m not that good of a person and would not have the time to do that and all the other paperwork and phone calls involved in closing an estate.
I find that CCers are , for the most part, very kind and generous with their time.
If there is any possibility that your mom may need to go on Medicaid, don’t distribute assets now. There’s a five-year lookback period on spending for people who are going to need Medicaid when the funds run out.
My BIL just found out that the facilities that will cover Medicaid patients want the senior to come in as full pay for two years prior to going on Medicaid. While FIL doesn’t need a facility yet (he’s at home with a health aide four hours a day, plus PT/OT), he needs daily care and that’s depleting his funds. My BIL fortunately keeps excellent records and has been handling FIL’s finances for the past 7-8 years. He and I have had regular conversations about these issues.
Yes, you could take funds out of mom’s IRA that she wants to distribute and keep in a regular account so any taxes will be vs her estate instead of vs your income. The assets would still be available for her care of needed or spending down to Medicaid.
Agree that spending an hour or two with cpa now could be worth a lot of time and money saved after mom dies.
Actually she’ll be giving gifts from her inheritance. Not a lot of legal implications. It’s on the honor system. If mom wants to guarantee the distributions then she needs to put them in an estate document. Doesn’t sound like that’s necessary. There are in fact some not greedy people out there.
It’s not always about greed. Some people are very hurt when they perceive an unfairness about the way funds are distributed-they see it as a personal rejection, or favoritism, etc. Sometimes the messenger receives the brunt of that hurt. I’m concerned that is going to happen to me, and it actually is all in writing.
There’s next to no chance mom will need medicare. She has awesome insurance left over from her job and isn’t likely to outlive any changes to that plus she has plenty to go into an assisted facility for quite some time if she decides to. So far she hasn’t wanted this, but she might in the future. She’s hitting a rough patch now so that topic might come up again soon. Regardless, no money is being distributed until after she passes anyway - just in case.
Otherwise, there really isn’t anything complicated and NY is superb at letting folks know exactly what needs to be done with an estate on their website - as I’ve discovered with my dad. Gifts mom wants to give will come from “my” funds afterward and she’s being really fair with that, so no resentment even if friends talk with each other afterward. In her family, the youngest sisters never got to go to college due to family income, so the older sisters have been assisting them occasionally even while alive due to the difference in jobs/income obtained. No one will object to mom continuing to do so. The grandkids are expecting nothing and will be appreciative of what they get - total fairness on that too. That leaves sis and I’ll be ok with her, esp since mom will be leaving her something vs nothing. She’s very rarely content/happy regardless of what happens. She could win the lottery and something would still be wrong/unfair. Nothing new there.
Quite honestly the tax implication from the IRAs was the question - everything else has been worked out or is in the process of being worked out as mom settles on what she wants. Seems the “worst” is the state/feds might get more in tax $ than they could have. Since “my” tax dollars only go for “good” things (the rest of you pay for the cruddy things), that’s not super horrid, though I’ll see if she feels up to changing things later this month. If not, at least I know what I’m dealing with. I appreciate that. Anything more known in advance beats being surprised when actually dealing with it.
I will have sis ask her lawyer about the house transfer. It appears she’ll have her choice of mom’s or dad’s. Mom’s is far better in condition, but she might like dad’s location better. Both are (or will be) mine, so I’ll need to sell her one of them for $1. I see plenty of these sales in our newspaper, so it should be able to be done, albeit I’m in PA and she’s in NY (as are the houses). I’ll just need to know if the taxes involved in the sale can be worked off that $1 or have to go by an appraised value.
If your serious about giving sis the house, get mom to do it. She’ll take it at the stepped up basis and shouldn’t have tax issues. If you try to “sell” it you may create problems for yourself. Bottom line on all your questions is try to keep it clean as possible.
Whoever inherits the house gets a stepped up basis. I agree that a transfer on death deed naming the sister is a much cleaner way to handle it - a sale for $1 is a part gift part sale transaction, with the most annoying parts of both. Just gift it if the TOD deed isn’t practicable.
Mom is supposed to be talking with sis about the house - but I honestly don’t know if that’s her top priority right now with the current health issues. Maybe. If not, I’ll figure it out.
you might want to call around and find a CFP that specializes in retirement issues. There is a forum with people that love financial questions at https://www.bogleheads.org/forum/viewforum.php?f=1 where you might want to post.
Another question is whether its worth having her withdraw all the money now from the IRA, assuming it isn’t too large. She can then put it into a safe investment such as a money market fund and leave it to you in a brokerage account set up as transfer-on-death so it doesn’t go thru probate. I’m assuming she qualifies for penalty-free withdrawal. The sum will be taxable but the overall taxes may be lower depending on her current income and yours. If you inherit the IRA and take money out, even over time, the money coming out will be taxed at your marginal rate.
May not be an advantage. Right now any annual taxable returns from your investments can be kept small if in tax-efficient index funds, and qualified dividends are taxed at capital gains rates. In the future when you sell these investments the gains are taxed at capital gains rates. If you sell your investments and buy equivalents in the IRA then you’ve turned any gains past the time you do this from capital gains into ordinary income.
Caution: i’m not a financial planner, CPA, etc. so these are just ideas to investigate and not financial advice
@mikemac Thanks. So far donating hasn’t been on mom’s mind - just giving to friends. I can ask if she starts to feel better. It’s entirely possible her doctor will admit her to the hospital tomorrow and it probably should have been run past the dr today (after fluids and meds yesterday didn’t last long), but mom didn’t want to. Sis is with her. I’m eight hours away, so trying to keep tabs and wondering if I should be dropping everything to battle the snow and ice heading north. As it stands, I’m still going to school tomorrow and will be waiting. All this to say I don’t really want to press these issues with her right now… but if she improves, then I will in a day or two. If not, I’ll deal with what I have to deal with and pay what we need to pay. Mom has a lot of physical and emotional stress ATM.
Her IRAs are significant enough that if she pulled all her money out in one year her tax bracket would probably be higher than ours.
The investment I’m contemplating liquidating instead is real estate that took a dip in the economic downturn but has since recovered. We haven’t actually “earned” much on it though so “profit” wouldn’t affect our taxes a lot, but selling would return our invested amount freeing it up for something else. Real estate did very well for us in the past. Right now other things could do better. When I have numbers I’ll calculate them and we’ll contemplate our options. The area is still growing, so it will depend on how much we expect more growth, etc.
@Creekland I don’t know the family dynamics and mom’s condition, but it might be work considering becoming her agent and doing all the legwork with the advisers. Assuming you have a good idea what you mom wants, you can get everything laid out for her so she doesn’t need to go thru all the what ifs and buts advisers like to through out. I know my mom would just shut down when it started to become too complicated (but our family dynamic was a mess). Once you have it set up, you can review it with her and fill out any papers which need completed.
