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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3153
Experience:  EA, CEBS - 35 years experience providing financial advice
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I recently had two parents pass away and im the executor of

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I recently had two parents pass away and i'm the executor of the will. The estate has a home, property, 401k, annuities, life ins and everythning is being turned over to me to split with my sister and nephews. Now with all of these settlements coming in what am i looking at in taxes at the end of the year. I have a normal family income of $108,000.00 with normal deductions and with all of the 401, annuties and settlement what am i looking at in taxes as a result of getting this stuff in my name? I did have federal and state taken out of the 401k, 24% federal and 4.5% state. Now with all the income added it will be $290,000.00 income, what do i have to set aside to cover owing the goverment?

What dates did your parents pass away? Who was the designated beneficiary of the 401(k), the annuities, and the life insurance? Have the proceeds from these assets been paid out? Were the proceeds paid directly to the estate or to individual beneficiaries? What are the amounts that were paid from each individual asset? Was the home or other property in joint name?

Customer: replied 8 years ago.
Mom passed june 29, 2008, dad October 29,2008
I was the designated beneficiary for all 401k, life ins and annuities as well as co signature on their bank acct with a CD.
All policies have been cashed out and nothing done or disbursed.
IRA check $114,000.00 (after tax net $86,500)
Fathers life ins $25,000
Annuities $13,000 and $3,000 (2)
bank Cd $27,500
Home has both decease parents name on the deed.
I have contacted an attorney to start probating estate for the transfer of the deed into both my sister and my name. there is a lot attached to the home.
I need to disburse some of the assets as designated in a will $10,000 to my nephews (in writing in the will)
Also $2,000 to sister who has financial issues.
I have a very amicable relationship with sister but don't want to split everything and find out i will have to pay $30,000 in taxes because everything was given to me? Please advise?

If you were the beneficiary of your father's life insurance policy then the surrender proceeds are income tax-free. The CD proceeds are also income tax-free except for any interest that accrued after the date of death. The interest that accrued prior to death would be reported on the deceased's final income tax return. If the annuities were nonqualified contracts (not retirement accounts such as an IRA, 403(b), etc) then only the earnings are subject to income taxes, not the portion that represents the investment in the contract. The annuity companies can provide you with the amount of the distribution that is taxable. The IRA distribution is subject to income taxes if your parents had never made nondeductible IRA contributions or rolled over after-tax monies to the account from a qualified plan.

If all of the assets (other than the home, the lot and the property in the home) were paid directly to you as beneficiary and not to the estate, then they cannot be distributed in accordance with the will. Only assets that are paid directly to the estate are distributed in accordance with the will.

If the gross estate is $2,000,000 or less then there are no federal estate taxes due. If your parents were residents of MI then are no MI estate nor MI inheritance taxes due.

Based on the information you provided it appears that the primary asset that you will have to pay income taxes on is the IRA account. If you file jointly then the additional federal income taxes attributed to the IRA will be approximately 24 - 26% depending on your income tax adjustments, deductions, and exemptions. If you file single then the taxes will be more. Since you already had taxes withheld of $27,500 (24.12%) from the IRA distribution, you may not owe that much more (if any) after your taxable income is calculated.

Any assets that you give your sister will be considered a gift. If you give her more than $12,000 in a calendar year then you will be required to file a gift tax return (Form 709). You will not have to actually pay any gift taxes as there is a credit available to offset the taxes on excess gifts up to $1,000,000 over a person's lifetime. Once excess gifts exceed $1,000,000 then gift taxes have to be paid.

Customer: replied 8 years ago.
last question;
When i have to produce the list of assets for the probate of the estate to the court the only thing i need to list is anything that wasn't directly paid to me as a beneficiary, correct? also when i file income tax what do I claim as accrued or assets i received from my parents?

Yes, the lists of assets for probate would only include those titled in your parent's names that went directly to the estate, not the contracts or assets that had designated beneficiaries. Any earnings from assets that accrued prior to their deaths would be included on their final income tax return. Earnings that accrued after their deaths would be taxable income for you if the asset was distributed to you or reverted to you. You will receive a Form 1099-R for each IRA account and annuity contract that you received a distribution from. The taxable amounts and withheld taxes will be reported on your individual income tax return. If the CD was changed to your name after their death then 2 separate 1099-INTs should be issued to breakdown the interest that was earned before and after their deaths. The life insurance proceeds are tax-free.

When you eventually sell the home and the land then you will have to pay tax on any capital gain. To determine the amount of the gain you would subtract the cost basis (which is generally the fair market value of the property on the date of death) from the proceeds received from the sale.

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