Q:

Subject: inheritance tax question

 

Hi. You know my cousin … and she suggested I could try to ask you a question.When my mom dies all of her accounts have her 3 kids as beneficiaries. We should share almost 300,000. These are cd's, bank accounts, treasuries, mutual funds...some in an IRA account. Do we pay any tax? She has paid tax on all of the money except her IRA.

Thank you,

A:

These are the kinds of things you need to work on with your own personal professional tax advisor.

Basically, in most cases inheritances are tax free to the heirs.  The most common exception to this is with pre-tax retirement accounts, such as conventional IRA accounts.  If the account was a conventional IRA, where your mom claimed deductions for the deposits, or a rollover from another pre-tax account, the balances passed on to the heirs will be taxable on their 1040s.

If the IRA was a different kind, such as a Roth or non-deductible, part or all of its balance could be tax free.  You will need to work with the account's custodian, as well as your mom's professional tax advisor

If the account is of the fully taxable type, you have a variety of different options as to when you will report it on your 1040 and pay the taxes.  You can do it all at once in the first year.  You can take it out in increments, completing the withdrawals by the fifth year following death.   There are also some different rules depending on whether your mother had already begun a withdrawal program before she died.

As you can see, there is no quick and easy answer.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/13/2006 09:50:00 PM Send this post: