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Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1672
Experience:  Enrolled to Represent Taxpayers Before The IRS
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We are in Ohio. Prior to my elderly mothers death, as a matter

Customer Question

We are in Ohio. Prior to my elderly mother's death, as a matter of convenience, my sister helped her with banking matters. Checking and savings accounts and CDs had my sister as joint owner with right of survivorship. Although these are legally nonprobate assets (and now belong to my sister), my mother's will (and her intent) was that the funds should be equally distributed to her five children. Immediately upon my mother's death, my sister withdrew the funds from the accounts. My sister intends to distribute the funds to me and my siblings, but is concerned about taxation to her. What taxes, if any, must be paid by my sister or her siblings with such a distribution?
Submitted: 8 years ago.
Category: Tax
Expert:  Marvin,EA replied 8 years ago.
Hello and thank you for using Just Answer. How much was in your mother's account when she died?
Customer: replied 8 years ago.
I would prefer not to specify that at this time.
Expert:  Marvin,EA replied 8 years ago.
I understand. If the amount is under $338,333 no estate tax is due for the State of Ohio. The federal estate tax exclusion for tax year 2008 is $ 2,000,000. No federal tax is due for estate under $ 2,000,000.
Customer: replied 8 years ago.

There are other assets in addition to the cash that could fall under the $338,333. Because my sister is now the sole owner of the cash, isn't it correct that those funds are not part of my mother's estate, so there would be no estate tax to begin with on the cash? My sister is not the executor of the estate. She is just holding the cash because she was the joint owner on the accounts. In order to distribute the cash to the siblings, she has been told she can gift each of her siblings up to $12,000 per year without her being taxed. Is that correct? I researched a little and read that since she is married she can gift up to $24,000 to an individual in one year. Is that also correct? I also read that she can gift up to $12,000 (or $24,000) per year to as many individuals as she chooses. Is that correct? If each of the siblings share was more than that $24,000, could my sister possibly gift the remaining money to her siblings' children so that then all of the cash could be distributed more quickly than $12,000 per year per sibling? I'm not sure why my mother was advised to do this, but it is the situation we are faced with resolving. In a nutshell, we just need to get the cash to everyone as quickly as possible without paying any more taxes than necessary. Thank you.



Expert:  Marvin,EA replied 8 years ago.
With most estate the total amount of the deceased's assets is use to determent the value of the estate. If the cash was left to your sister she can gift up to $12,000 ($24,000 if she is married) per year to her siblings before she would have to file a gift tax return. She can gift the $24,000 to as many individuals as she chooses. She cannot gift any amount to someone for future interest. Giving a gift to a child is a future interest gift. She would have to file Form 709 for future interest gift, and gift over $24,000. Although tax is calculated on the return, no tax is due until your sister exhausts her $ 1 million exclusion.
Customer: replied 8 years ago.

This is very helpful, but I still feel I need to better understand exactly how the cash fits into the overall estate picture, if it does at all. I think someone advised my mother to have my sister as joint owner of the cash accounts. By doing so, upon my mother's death, the cash stays out of her estate. I think then, it is not technically inherited by my sister, but she just becomes the sole owner of it, so it is not part of my mother's estate for purposes of estate taxes. The intent is to equally divide it among the siblings, but the question becomes -- how does my sister do that without her having to pay any taxes?


Secondly, If I understand correctly, as long as my sister's final gift/estate distributions are below $1 million dollars, then she will not pay any taxes, even though they would have been calculated on tax returns in the years she made them. Is that also a correct understanding?


Thank you.

Expert:  Marvin,EA replied 8 years ago.
The information you sister received was incorrect about the joint account If you mother deposited the funds in an account with your sister as the joint owner of the account the funds belong to your mother.   Your sister did not deposit any of the funds into the account. If your sister withdrawal any of the funds the amount will be a gift to her from her mother. If you sister withdrawal over $12,000 in a year from the account when your mother was alive your mother would have to file a gift tax return. When your mother died the total amount in the account is part of her estate for federal tax purposes and if the amount was over $ 2,000,000 federal estate tax is due on the amount over $ 2,000,000. If the amount is over $338,333 State of Ohio estate tax is due for the amount over $338,333.

As long as the distributions you sister make are below $ 1 million no gift tax is due.