Author Topic: Inheritance Tax Question - Help Please!  (Read 2187 times)

Hot_AZ

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Inheritance Tax Question - Help Please!
« on: April 07, 2015, 09:21:57 PM »
My mother recently passed away and her trust left much to be desired.  It was so generic it isn't going to help my brother and I avoid taxes.  For example, her investments were titled to the trust which means we have to cash them out, have the "trust" pay taxes and then we split what is left.  Her investments were around $400K.  I am in the US and I'm in my 40's.  She was 69.  My dad is gone as well. 

My mom's financial advisor hasn't been much help, my accountant hasn't either.  Can someone help me figure out a way to try to avoid some of the tax implications?  I am maxing out my 401k at work (first year I've been able to do that) and putting $5500 in an IRA.  I will have my husband do the same (he's self employed so we will do a SEP and max out his IRA).  Is there anything else I can do? 

I have several questions and was hoping another Mustachian may have been through this.  For example, when they cut the checks from her IRA and her annuity, will they typically withhold any taxes?  And will I be responsible for additional taxes when I file my 2015 taxes? 

All the research I've done makes me believe we will end up paying 40% taxes on the investments.  Are there any other measures I can take to help reduce the amount of taxes I may owe?  I understand I will owe, I don't mind paying what I owe but I'd love to reduce the amount the government takes by as much as I can.

Any input is greatly appreciated. 

SaintM

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Re: Inheritance Tax Question - Help Please!
« Reply #1 on: April 08, 2015, 05:16:05 AM »
What percentage of the $400k in investments was in a tax-deferred IRA or 401(k), in a tax-exempt Roth, and in a taxable account?

Roth and taxable account money should be easy--there is no tax or a step-up in basis. The tIRA and 401(k) are really poor estate planning vehicles. The very likely possibility that heirs have to recognize all the income in a single year is one of the things that makes these programs a time-bomb with a fuze that few can predict.

My parents and I are trying to structure their assets right now to avoid it.

Hot_AZ

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Re: Inheritance Tax Question - Help Please!
« Reply #2 on: April 08, 2015, 06:03:03 AM »
There are 2 small IRA's, one is $50k, the other is $55K.   The rest is in the annunity. 
My parents wouldn't take advice from us kids and my mom hardly trusted anyone about money.  I'm shocked she trusted the guy who is handling her money, I cannot believe he put her in an annuity....

forummm

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Re: Inheritance Tax Question - Help Please!
« Reply #3 on: April 08, 2015, 06:04:47 AM »
It sounds like a consult with a tax attorney who specializes in estates could be worth the cost.

tjscanlon

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Re: Inheritance Tax Question - Help Please!
« Reply #4 on: April 08, 2015, 07:34:33 AM »
Sorry about your loss.  You may want to call the annuity directly.  I went through a similar situation.  As I remember my siblings and I had the option of withdrawing our portion of the annuity via one lump sum, over 5 years, or over our lifetime.  It comes out and is taxed as income, so spreading it out over 5 years may make sense if it is an option.  Your situation or annuity may be completely different but I would speak to them directly.

Sibley

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Re: Inheritance Tax Question - Help Please!
« Reply #5 on: April 08, 2015, 09:22:44 AM »
Get as much information as you can about the current status and options available. Then I'd recommend talking to someone who specializes in estates/taxes. If your accountant isn't able to help, then maybe they can recommend someone.

Also, take this lesson to heart and get your estate in better shape.

nedwin

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Re: Inheritance Tax Question - Help Please!
« Reply #6 on: April 08, 2015, 09:54:58 AM »
Seek advice from an attorney or CPA with substantial income and estate tax experience.  It will money well spent if they can save you some taxes.