Tag Archives: inheritance tax

HOW IS IRA DISTRIBUTION TAXED?

Q: John named his estate as the beneficiary of his IRA. He died after his required beginning date in 2012. After his death, the trustee of the IRA distributed the balance of his IRA to his estate. If the entire amount of the IRA was distributed from the estate to the estate beneficiaries, who pays the tax on distribution, the beneficiaries of the estate? Pittsburgh, PA

A: The beneficiaries of the estate will be liable for the tax on the amount of each received. The beneficiaries will be entitled to reduce the distribution amount by their allocated share of basis in the IRA if there was any. The distribution is reported as other income to the estate on Form 1041. The amount is deemed to be distributable net income and is reported as an income distribution deduction by the estate, limited by DNI (§661). The allocated amount will flow from Form 1041 to Schedule K-1 and reported on the beneficiaries’ personal Form 1040.

 

If I am in Bankruptcy, can my aunt put my name on the deed to her house?

Q: In Chapter 13 can I be put on another house’s deed? I declared Chapter 13 about 3 years ago and have been making payments. My aunt wants to put me on her deed. What are the ramifications of that, and the risks to her? She will be entering a nursing home and doesn’t wish to sell the home.

A: Two issues. Is this wise to do for estate planning purposes for your aunt and is this wise for you to do while you are in bankruptcy? From an estate planning point of view, if she titles the house jointly with you, only half of the value of the house will be subject to inheritance tax when she dies. Since the applicable inheritance tax rate for a nephew is 15%, this could save some money. The negative side of such transfer is that if in within five years following the transfer, your aunt needs to apply for Medicaid, such a transfer could make her ineligible for Medicaid funding. The house would have to be included in her assets subject to the Medicaid claim and you may be forced to sell this house unless you could pay the fair market value to Medicaid. This is of course unless some Medicaid exclusion applies for example if you lived in the home as her caretaker for a period of two years prior to the application date. If your aunt really foresees Medicaid funding in her future, you should have her consult with an attorney versed in Medicaid law in order determine if she can shelter some of her estate now perhaps through a Medicaid trust. As far as your bankruptcy, I would check with your bankruptcy attorney as the acquisition of an interest in real estate while under a bankruptcy plan, may, violate your agreement with the trustee assigned to your bankruptcy case.

Brother has a will, but put us on his certificates of deposit

Q: My brother had his will drafted in 1999. In this will, all of his property was left to a certain friend of his.  However, several years later, he added me and our sister to his certificate of deposits.

A: Generally, jointly held property (joint tenants with right of survivorship) goes to the surviving tenants and does not go into the estate. Therefore, if your brother made you and the sister joint tenants with him on the CD’, when he passes, you and your sister own the CD’s and they do not go into the estate nor to the “certain person” listed in the will. If the transfer of the CD’s was done within a year of death, they are fully taxable with a $3,000.00 exclusion. If made beyond one year prior to death, the surviving tenants only pay inheritance tax on the deceased tenant’s share. Thus if you, your brother and your sister are joint tenants with right of survivorship, then inheritance tax is only due on one-third of the assets.

If I am in Bankruptcy, can my aunt put my name on the deed to her house?

Q: In Chapter 13 can I be put on another house’s deed? I declared Chapter 13 about 3 years ago and have been making payments. My aunt wants to put me on her deed. What are the ramifications of that, and the risks to her? She will be entering a nursing home and doesn’t wish to sell the home.

A: Two issues. Is this wise to do for estate planning purposes for your aunt and is this wise for you to do while you are in bankruptcy? From an estate planning point of view, if she titles the house jointly with you, only half of the value of the house will be subject to inheritance tax when she dies. Since the applicable inheritance tax rate for a nephew is 15%, this could save some money. The negative side of such transfer is that if in within five years following the transfer, your aunt needs to apply for Medicaid, such a transfer could make her ineligible for Medicaid funding. The house would have to be included in her assets subject to the Medicaid claim and you may be forced to sell this house unless you could pay the fair market value to Medicaid. This is of course unless some Medicaid exclusion applies for example if you lived in the home as her caretaker for a period of two years prior to the application date. If your aunt really foresees Medicaid funding in her future, you should have her consult with an attorney versed in Medicaid law in order determine if she can shelter some of her estate now perhaps through a Medicaid trust. As far as your bankruptcy, I would check with your bankruptcy attorney as the acquisition of an interest in real estate while under a bankruptcy plan, may,  violate your agreement with the trustee assigned to your bankruptcy case.

My sister and I inherited mom’s house. Do we need to pay inheritance tax?

Q: My sister and I inherited my parent’s house and I have lived in it for the past 7 years since my mom died. We want to sell the house to a neighbor but her attorney says my sister and I must file an inheritance tax return and we will probably owe inheritance tax dating back to when my mother died. What do you think?

A: The attorney may be correct. Your parent’s home was probably jointly held by them by the entireties as is usually the case. When your father died, your mother inherited it from him by the law of entireties but was subject to the spousal inheritance tax rate of zero, so no inheritance tax was owed. Assuming you and your sister are the only children, you both inherited this house under your mother’s will or under intestate law from your mother. At the time of her death the house was most likely subject to inheritance tax which would have been due within 9 months of the date of her death. If that is the case, this tax and any interest that has accrued and possibly penalties are now owed. You should consult with an attorney to confirm this and to prepare a PA inheritance tax return using all available expenses as deductions. You will likely need to pay inheritance tax.