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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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my wife has the power of attorney for her sister the inheritance

Customer Question

my wife has the power of attorney for her sister
the inheritance is approx. one million,my wife's share is about 50%
and 4 others are to share the remainder equally. i think that my wife should file
a tax return for her sister,but how & when will the tax on the inheritance be paid.
if my wife gives her inheritance to her son's,how will the tax be paid on the amount
she gives to her son's
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello Cadillac,


Can you please tell me what state your wife's sister lived in?


What year did she pass away?


Can you tell me if any of the $1 million she left was part of an IRA or other tax deferred retirement account?



Customer: replied 7 years ago.



Expert:  Merlo replied 7 years ago.

Hello again Cadillac,


There is no longer any inheritance tax or estate taxes in California, so state filings are not an issue.


For federal purposes, it may depend on when your wife's sister actually passes away. For the year 2010, the estate tax has been eliminated entirely. It is set to return in 2011 and will apply to any estate with a value of $1 million or more. If her estate does not exceed $1 million, then again you will have no estate filings to worry about. If she does pass away in 2011 and her estate is valued at more than $1 million, you will need to file an estate tax return and pay estate taxes on the portion of her estate which exceeds the $1 million exemption at a rate of 55%.


If it ends up that her estate is not subject to estate tax or whatever is left after the estate taxes are paid, that will be the end of your tax liability. If your wife plans to give her share of the inheritance ($500,000) to her sons, then she will need to file a gift tax return to report the amount she gave them, but no taxes would likely be due.


Under current law, each taxpayer is allowed to give gifts in their lifetime of up to $1 million before they pay any gift taxes. There is also an annual exclusion on gifts of $13,000 to another individual which do not even apply towards this lifetime exemption. But gifts that exceed the $13,000 annual gift exclusion must be reported by filing Form 709 with the IRS. Those gifts then reduce the person's remaining lifetime limit down from the $1 million tax free limit. So your wife would file the form 709 to report the $500,000 she would be giving in gifts to her sons.


If no estate taxes apply or once estate taxes have been paid, the heirs have no further taxes to pay on this inheritance. If some of the money is in CD's, they would owe tax on the interest earned by those CD's, but not on the face value of the CD's themselves.


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Thank you Cadillac