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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 will be inheriting a small amount of cash (under $100,000)

Resolved Question:

I will be inheriting a small amount of cash (under $100,000) from my stepmother who passed away earlier this year. Will I owe taxes on this money and if so, approximately how much? I live in Illinois. She lived in Arizona.
Submitted: 7 years ago.
Category: Tax
Expert:  Bill replied 7 years ago.
Will the source of the funds be from a retirement account such as an IRA or 401(k) or an annuity?
Customer: replied 7 years ago.


It is from a liquidated trust.

Expert:  Bill replied 7 years ago.
Was the trust revocable or irrevocable prior to your stepmother's death?
Customer: replied 7 years ago.
Expert:  Bill replied 7 years ago.

If the trust was revocable then the cost basis of the assets in the trust would be stepped-up to their fair market values on your step-mother's date of death. Whether there is any gain on the assets when they are sold depends on the type of assets and the date of death. If the proceeds from the sales are passed through to you then you would report any income, gain or loss on your individual tax return. The trustee will give you a K-1 identifying the types of and taxability of the proceeds.


So, depending on the types of assets and the date of death, there may be little or no income that will be taxable to you.

Customer: replied 7 years ago.

The assets were comprised of savings accounts, bonds, stock which was liquidated, dryden dividends, and a lincoln financial annuity (liquidated). The date of death was April 2009. The attorney did state that a K-1 would be issued at the end of 2009. I'm just trying to get an idea in order to plan ahead. I am currently among the unemployed and having my own issues.


Thanks for your help

Expert:  Bill replied 7 years ago.
There should be little or no tax from the liquidation of the savings accounts and bonds. Depending on the value of the stock when it was sold and the date of death value there may be some gain but it will considered a long term gain which is taxed more favorably than other income. The annuity could generate the most income depending on whether it was a nonqualified (not a retirement account) or a qualified (a retirement account) annuity. It is difficult to project the taxes without more specific information on the amount in each asset and answers to the above questions. For example, if the savings accounts and bonds represent 50% of the $100,000, if there is little gain on the stock sale, and if the annuity is a nonqualified annuity with earnings of $5,000 or less, then you may owe little or no tax on the $100,000 (and also depending on your other income for the year).
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