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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4020
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My deceased daughter has an estate checking account and we

Resolved Question:

My deceased daughter has an estate checking account and we are near wrapping up her estate. Her father and I received her 401K money, less federal and state taxes. We did not get any of the money, however, because it was needed to pay her final expenses. Now were are having problems. My 2013 tax return shows the 401K monies as income that I did not receive (did not cash the check but deposited it immediately to Andrea's estate checking account) and that amount has put me in the next tax bracket, increasing what I owe for taxes. Why should I be affected by this income when it never did reach my checking account? The 401K money (gross amount) should have been put directly into her estate account, in my opinion, and when all bills were paid we would have then paid the federal and state taxes from the 401K income. If there was money left at the end then we would at that time be individually taxed on the amount of money that we received. Am I right? My daughter did not have a will or anyone named as beneficiaries of her 401K or life insurance. Thanks!

Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

It's a little late her on the East Coast, but I'll try to get started & if you are off for the night, we'll have to continue tomorrow.

Stephen G :

First of all if neither you nor your husband were named beneficiaries on your daughter's 401-K, then the distribution check should have been made been made payable to your daughter's estate and then deposited to the estate account and the 1099-R should have shown the estate as the payee of the distribution and used the estate's Federal ID number on the 1099-R.

Stephen G :

That could have complicated things further for you as the estate would have had to file an income tax return on Form 1041 and possibly paid a much higher tax on the 401K distribution.

Stephen G :

So one question would be "Are you positive that your daughter didn't designate a beneficiary for her 401-K - when she established the 401-K she normally would have been counseled to designate a beneficiary, usually a parent if the individual wasn't married.

Stephen G :

I presume that you have taken the credit for the income taxes that were withheld from the 401-K on your personal income tax returns for 2012.

Stephen G :

If she had life insurance (as you noted), that would have not been taxable in any case, except possibly for any small amount of interest that may have been paid as part of the settlement check.

Stephen G :

Who received the insurance proceeds? Again it would have been unusual for an insurance policy not to have had a beneficiary. If there was no beneficiary, the insurance proceeds should have been made payable to the estate. If they were paid to anyone else, the policy would have had to have had a beneficiary designation.

Stephen G :

Again, once the 401-K money was distributed, someone has to pay income taxes on it, irregardless of what the money is used for. That's why there was income tax withholding on the distribution in the first place.

Stephen G :

So the only part of your summary of the facts and circumstances that doesn't seem to make sense is how the Custodian of the 401-K could have made the distribution check out to you if you were not the beneficiary of the account.

Stephen G :

If you have any further questions or would like to discuss this directly with me in order that I may clarify anything for you, please let me know when you come back online. I should get an email from the site alerting me that you have returned.

Stephen G :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.

You may get a short survey from the site; if it isn't too much trouble please answer it; thanks, SEG

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4020
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 3 other Tax Specialists are ready to help you

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