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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6169
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Inherited funds from an estate that did not earn income.

Customer Question

Inherited funds from an estate that did not earn income. Estate was424000. Divided between 3 soblings. Do we have to claim this as income or does it fall under class a.
Submitted: 8 months ago.
Category: Tax
Expert:  Stephen G. replied 8 months ago.

Inheritances aren't subject to income tax; it has nothing to do with relationship class the recipient is in; that only has to do with the application of the Inheritance Tax.

Customer: replied 8 months ago.
Why then when I went to my accountant did he file a k1 and I end up owing approx $40000 on the $141000 I inherited? He hasn't filed it yet ...
Expert:  Stephen G. replied 8 months ago.

Well, you said that there was no income in the estate, but you didn't say what the estate consisted of. It must have included some "Income in Respect of a Decedent" which would mean that there was an probably an IRA or Annuity or something similar in the estate that the decedent hadn't paid any taxes on as of his/her date of death. In those cases the beneficiaries has to pay the income taxes.

What were the nature of the assets in the estate?

Customer: replied 8 months ago.
Ira and annuities. Total estate was 422000. The Ira and annuities were bequeathed to a trust
Expert:  Stephen G. replied 8 months ago.

Well, that's your answer as I suggested. There has been no income tax paid on those assets.

Customer: replied 8 months ago.
Even annuities ? I Was hoping all the loop holes for estates would apply to annuities.
Expert:  Stephen G. replied 8 months ago.

What "loop holes"?

If the Trust had paid the taxes it would have been at the 39.6% rate or a total of over $160,000.

Customer: replied 8 months ago.
correct it is now passed on to the beneficiaries, that will pay according to their tax rates. You helped a lot thank you!
Expert:  Stephen G. replied 8 months ago.

OK, great. Please remember to rate my response.

Thanks very much,

Steve G.