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Good Evening! Wondering if you can help me! My grandparents

Good Evening! Wondering if you...
Good Evening! Wondering if you can help me!

My grandparents passed away fairly recently...we lost my grandfather two years ago and my grandmother a few months ago. Many years ago, there was a will prepared but since that time (and about eight years ago) the home that my grandparents owned and my parents lived in as well was transferred into my mother's name (along with my grandparents names) as it was their intent to give the home to the child who lived with them and cared for them and the home through the years. This was the largest asset in my grandparents' estate. The rest of the assets were liquid bank accounts which listed my mother as either a joint signer or POD accounts listing my mother as the beneficiary. We have retained an attorney to aid my Mom in distributing the liquid assets (approx 350K) to her three siblings. My questions involve taxes:

As the assets do not require probate court and have transferred to my mother by virtue of the account titles, is this still considered an "estate"? The attorney will be helping her distribute the funds in the bank as my grandparents had detailed in their will. We simply will not need to enter the probate process.

As the assets are much less than 5.25 million (federal estate tax exemption) and less than 1 million (Massachusetts State exemption), am I correct in assuming that my mother will not need to file an estate tax on behalf of the estate?

As Massachusetts does not have an Inheritance tax for the beneficiaries, am I also correct in assuming that my mother's siblings will not have to file an income tax return for the inheritance they will be receiving?

The biggest question I have is this....if we do not need to enter the probate process to distribute my grandparents "estate", does the IRS look at this as an estate situation with regard to taxes? Or because the money has passed into my mother's name without probate does it become a "gift" situation with my mother gifting the money to her siblings?

If that is the case, how do the taxes work? Each sibling will receive approximately 80K...well beyond the 14K allowed as a gift per year.

Thank You so much for your help! I am trying to help my parents through this process....
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Answered in 13 minutes by:
8/23/2013
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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Greetings,

 

Sorry to hear of the loss of your grandparents.

 

As the assets do not require probate court and have transferred to my mother by virtue of the account titles, is this still considered an "estate"?

Yes, all of the assets whether or not going into probate are part of the estate tax and for income tax purposes. For example, one could not avoid estate tax just by having accounts worth ten million dollars pass to their children by titling.

Of course, once those assets (immediately) pass then the income from those assets is no longer income of the estate but of the recipient.

 

...am I correct in assuming that my mother will not need to file an estate tax on behalf of the estate?

Yes, that is correct when the value is less than the amount for required filing.

 

...because the money has passed into my mother's name without probate does it become a "gift" situation with my mother gifting the money to her siblings?

Because your mother got the funds she has inherited those funds.

If she gifts more than 14,000 to any one person in a year she has to file a gift tax return.

Since she has a five million (and a bit more) dollars to give in gifts before she will owe any tax there is just a Form 706 and zero tax to pay with that return required. The amount gifted does reduce her amount that will pass free of estate tax on her departure.

 

For more details for her filing see http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Filing-Estate-and-Gift-Tax-Returns

 

Her siblings are getting gifts from her and not an inheritance but neither gifts or inheritance received is subject to income or gift tax to the recipient. Income earned on the gift after receipt would be included in the recipient's tax return.

 

Please ask if you need more discussion or clarification.

Thank you.

jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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Customer reply replied 4 years ago

I'm so grateful to you for your help! I'd like to ask for clarification on the "gift tax" if I may....

You wrote "Since she has a five million (and a bit more ) dollars to give in gifts before she will owe any tax there is just a form 706 AND TAX to pay with that return required."

I'm confused by that statement...as the gifts will be much less than five million to give to her siblings...what is the tax that she would pay? or would she simply need to file form 706? I am approximating that she will be giving each sibling nearly 80K.

Customer reply replied 4 years ago

Thank you so much for the clarification! I understand! We have a lifetime exemption for gift giving of just over five million..the fact that she has given these gifts to her siblings will eat into that figure but I doubt very highly it is one that will ever be reached in our lives!!

So, the estate itself does not require a tax return but my mother will need to file a gift tax return for each sibling but will not pay taxes on her end.


 


I'm so very grateful for your help!

And thank you for your kind expression of sympathy. I miss my Nana and Papa very much.

Have a wonderful evening!

Hello again,

Glad you found that is now says she owes zero gift tax.

"the estate itself does not require a tax return" is true for the estate tax.

If the estate has more than $600 of income in the year after the date of death than an income tax return on Form 1041 would be required.
That seems unlikely from what you described but details and forms can be found at the links from http://www.irs.gov/taxtopics/tc356.html

Thank you for the positive rating and the opportunity to be of service.
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