Mom's estate's taxable account

[mountainsailor]

I apologize if this has been answered somewhere else. I am mostly a lurker and have found invaluable advise here. My mom passed unexpectedly at 89 in May and I am the executor of her estate. Things have been going smoothly and I do have her lawyer to consult with, but her accountant is out of the country till the end of the month so I am here. She had an IRA with Morgan Stanley which is in process of changing to Inherited IRAs for her 5 children. She also had a taxable account with 5 mutual funds and a money market account. Those funds were moved into an estate account with MS. I liquidated those stocks last week when the market was up. I was assuming the estate will pay taxes on the money she made before her death and the heirs will pay on the amount earned since her date of death until the sale date. Right or wrong? MS said they could divide the amount and issue checks to heirs or should I wait? She had considerable other assets in accounts to cover expenses and taxes. I probably sound like a rookie, which I am! TIA.

[pb4uski]

Sorry for your loss.

Usually a taxable account would be distributed to beneficiaries designated... similar to your experience with the IRA... the beneficiaries would receive shares outside of probate, get a stepped up basis for the shares and can then decide whether or not to sell them. If no beneficiaries are designated then it would go to the estate.

Are you going through probate in your state?

[GrayHare]

The following link is to just one of many help pages there about various decedent estate questions, hope it helps.

https://www.dummies.com/personal-fin...nd-the-estate/

[MooreBonds]

Quote:

Originally Posted by mountainsailor She also had a taxable account with 5 mutual funds and a money market account. Those funds were moved into an estate account with MS. I liquidated those stocks last week when the market was up. I was assuming the estate will pay taxes on the money she made before her death and the heirs will pay on the amount earned since her date of death until the sale date. Right or wrong? MS said they could divide the amount and issue checks to heirs or should I wait? She had considerable other assets in accounts to cover expenses and taxes. .

In dealing with my grandmother's estate (I was the functional executor, while my father was the sit-back-and-let-your-son-do-all-the-work official executor), the first step is filing for an estate tax ID number (NOT your mother's SSN - the TIN would be like a business format: xx-xxxxxxx. Still 9 digits, but one hyphen, and in a different location). This Tax ID number should be used for any and all income/sales/etc. that take place after the date of death. Some custodians would also require the account/assets be re-titled in the name of the estate (accompanying the new TIN).

Here is an IRS page on the TIN, as well as the fiscal calendar treatment (you don't have to follow the April 15 deadline)
https://www.irs.gov/businesses/small...turn-form-1041

The estate would pay taxes on any income earned prior to the date of the death. But the estate should also pay any taxes on income earned by assets held in the estate account, prior to being transferred to an heir. For instance - I decided to take ownership of one of my grandmother's CDs, and had it transferred to my brokerage account under my name/SSN. This took place fairly soon after the date of death, so no income earned issues, but if it took a while, the estate would declare any interest paid out on the CD prior to being transferred, and I would declare any interest paid out after I obtained ownership of it.

With stepped-up basis, I don't know how you handle the basis when the estate sells assets versus an heir - normally, the heirs would benefit from the stepped-up basis, and the "cost basis" would be the value on the date of death, so zero capital gains (or minimal) CG would be declared. I hope that didn't get messed up with the "estate" selling the assets versus an heir. Will need to check with your accountant. I'd suggest holding off on selling anything else until you verify that.

[mountainsailor]

Thanks folks! No beneficiary on a couple of accounts, so yes to probate. I will hold off on anything else till I talk to the accountant. It sounds like I should move the $ into the estate account and then deal with it there until I get some definitive answers.

[The Cosmic Avenger]

Quote:

Originally Posted by mountainsailor Thanks folks! No beneficiary on a couple of accounts, so yes to probate. I will hold off on anything else till I talk to the accountant. It sounds like I should move the $ into the estate account and then deal with it there until I get some definitive answers.

That's too bad. I've handled an estate of over $600K that didn't need to be probated at all, even as a small estate! The decedent's state has exemptions of $25K for a vehicle, $20K for household goods, and $25K for savings/checking accounts, and we didn't get anywhere near those. The large majority of the assets were in an IRA and a brokerage account with a designated beneficiary. That example definitely influenced my estate planning.

[SecondCor521]

Quote:

Originally Posted by The Cosmic Avenger That's too bad. I've handled an estate of over $600K that didn't need to be probated at all, even as a small estate! The decedent's state has exemptions of $25K for a vehicle, $20K for household goods, and $25K for savings/checking accounts, and we didn't get anywhere near those. The large majority of the assets were in an IRA and a brokerage account with a designated beneficiary. That example definitely influenced my estate planning.

Interesting. I'd like us to probate my Dad's estate as a small estate, but didn't think we could because I thought one had to include the IRA accounts in the estate value (for purposes of determining "small") even if they had beneficiaries. Anyone know one way or the other for sure?

[mountainsailor]

Yes, this experience has changed some of my decisions and Ive made all my siblings make sure they have beneficiaries. Mom had my dad still listed as beneficiary and he passed 5 years ago. I feel bad that I didn’t follow up after requesting beneficiary change forms. She had some accounts that were TOD and POD but not all. My husband and I are meeting with an estate planner next month!

[mountainsailor]

Unfortunately yes

[The Cosmic Avenger]

Quote:

Originally Posted by SecondCor521 Interesting. I'd like us to probate my Dad's estate as a small estate, but didn't think we could because I thought one had to include the IRA accounts in the estate value (for purposes of determining "small") even if they had beneficiaries. Anyone know one way or the other for sure?

I'm curious, too. I did pay an estate lawyer for a one hour review, and she said in NYS (I guess it's not a secret, it was years ago), inherited IRAs and accounts with designated beneficiaries pass outside of probate. The remaining value of the estate was well below the generous state allowances mentioned earlier, so according to her I didn't even have to file for small estate administration!

[gwraigty]

Quote:

Originally Posted by SecondCor521 Interesting. I'd like us to probate my Dad's estate as a small estate, but didn't think we could because I thought one had to include the IRA accounts in the estate value (for purposes of determining "small") even if they had beneficiaries. Anyone know one way or the other for sure?

Quote:

Originally Posted by The Cosmic Avenger I'm curious, too. I did pay an estate lawyer for a one hour review, and she said in NYS (I guess it's not a secret, it was years ago), inherited IRAs and accounts with designated beneficiaries pass outside of probate. The remaining value of the estate was well below the generous state allowances mentioned earlier, so according to her I didn't even have to file for small estate administration!

If it has a designated beneficiary, it's not part of the estate that needs to be probated. This can include not only financial accounts, but cars and real estate, if your state law allows such property to pass via TOD/POD.

Here's a link that explains the basics in my state:

https://www.portlegal.com/blog/what-...n-ohio-probate

Quote:

Keep in mind that many assets are non-probate assets and not includable in the release from administration calculation. Things like life insurance proceeds, jointly held property and payable upon death financial institutions are non-probate asset and equal zero when determining the probate asset base and whether they qualify for release from administration.

It should be easy enough to find relevant info for your state.

[mountainsailor]

In NC anything that has beneficiaries, is POD or TOD does not go through probate.