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Question regarding last chance to file Married Filing Jointly
Old 12-11-2017, 09:43 AM   #1
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Question regarding last chance to file Married Filing Jointly

Hey Buddies

My father-in-law died a few weeks ago. He and my Mother-in law:

- Live in Los Angeles county
- have a $1.1M home; no mortgage
- have a taxable $400K account in a Living Trust; mostly stocks/stock funds
- He had a $100K IRA
- She has a $100K IRA
- He was 88; she is 84
- They have three kids in their 50s.

This month we want to transfer the assets of the taxable account to perhaps Wellington/Wellesley/Target Retirement Fund, so she can take the capital gains hit while she can still file Married Filing Jointly.

Questions:
- Transferring to one of the above 3 funds will trigger the capital gains hit, right?
- She can do a peer-to-peer transfer of his IRA to hers without a tax hit, right?
- Anything else obvious that we should think about? Selling the house in 2017 is not an option

Thank you my brothers and sisters of leisure.
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Old 12-11-2017, 10:02 AM   #2
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Originally Posted by bob boag View Post
Hey Buddies

My father-in-law died a few weeks ago. He and my Mother-in law:

- Live in Los Angeles county
- have a $1.1M home; no mortgage
- have a taxable $400K account in a Living Trust; mostly stocks/stock funds
- He had a $100K IRA
- She has a $100K IRA
- He was 88; she is 84
- They have three kids in their 50s.

This month we want to transfer the assets of the taxable account to perhaps Wellington/Wellesley/Target Retirement Fund, so she can take the capital gains hit while she can still file Married Filing Jointly.

Questions:
- Transferring to one of the above 3 funds will trigger the capital gains hit, right?
- She can do a peer-to-peer transfer of his IRA to hers without a tax hit, right?
- Anything else obvious that we should think about? Selling the house in 2017 is not an option

Thank you my brothers and sisters of leisure.
Is the trust still a living trust. Often when the granter of a living trust dies, the trust is designed to become irrevocable. But you did not indicate who's living trust it is/ was.

Transferring assets does not trigger taxes (but distributing assets from an irrevocable trust might. Selling assets will cause the capital gains to be realized.

The IRA, who is the beneficiary on the IRA. You don't just transfer it. It gets inherited by the beneficiary. I'm not sure how the RMDs are handled in this case.

First thing you need to do is understand the trust. If you do things wrong this could be a real mess.
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Old 12-11-2017, 10:08 AM   #3
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Quote:
Originally Posted by bob boag View Post
Hey Buddies

My father-in-law died a few weeks ago. He and my Mother-in law:

- Live in Los Angeles county
- have a $1.1M home; no mortgage
- have a taxable $400K account in a Living Trust; mostly stocks/stock funds
- He had a $100K IRA
- She has a $100K IRA
- He was 88; she is 84
- They have three kids in their 50s.

This month we want to transfer the assets of the taxable account to perhaps Wellington/Wellesley/Target Retirement Fund, so she can take the capital gains hit while she can still file Married Filing Jointly.

Questions:
- Transferring to one of the above 3 funds will trigger the capital gains hit, right?
- She can do a peer-to-peer transfer of his IRA to hers without a tax hit, right?
- Anything else obvious that we should think about? Selling the house in 2017 is not an option

Thank you my brothers and sisters of leisure.
My condolences to you and your family.

1. Yes.

2. Yes, assuming she was married to him when he died and that she is the sole and primary beneficiary, she can just roll it into her IRA (there are other options, but I think rolling it over is the most common). As for RMD's:

a. She should already be doing RMD's on her IRA balance.
b. Her RMD for next year should be based on her 12/31 balance coming up in a few weeks.
c. He was obligated to take his RMD this year, I assume he already did so. If he didn't, then she would have to take his RMD this year as well.
d. For 2019, her RMD will be bigger because it will include his IRA balance as well. It should be based on her age, like always.

3. Several ideas:

a. If she has enough cash flow to live on, consider prepaying charitable contributions, property taxes, and income taxes before December 31, because the deductability of these items next year is in question.

b. Consider not moving the taxable stuff and just keeping it, as long as it matches her risk tolerance and she understands what she's invested in (or you do, if you're helping out). Selling it a little bit as needed for income will probably produce a lower tax hit overall.

She'll lose his Social Security and maybe part of his pension, and tax-wise she'll lose his personal exemption next year (may go away anyway with the new tax bill) and will be in the more aggressive single bracket. First priority in my opinion is to make sure she has enough to live on after all of those adjustments are made.
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Old 12-11-2017, 10:13 AM   #4
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She'll lose his Social Security and maybe part of his pension, and tax-wise she'll lose his personal exemption next year (may go away anyway with the new tax bill) and will be in the more aggressive single bracket. First priority in my opinion is to make sure she has enough to live on after all of those adjustments are made.
Actually she will get the greater of her or his social security i.e. if his benefit is higher she gets a survivors benefit of his total benefit. So the total social security amount goes down but possibly not as far as just her benefit.
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Old 12-11-2017, 10:16 AM   #5
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Do your own research, but I think your MIL gets a stepped-up basis on the shares since California is a community property state... this would step up the tax basis of those shares to the NAV on your FIL's date of death and probably significantly reduce the unrealized gains of those shares.... so any capital gains would be minimal.
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Old 12-11-2017, 10:18 AM   #6
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Originally Posted by meierlde View Post
Actually she will get the greater of her or his social security i.e. if his benefit is higher she gets a survivors benefit of his total benefit. So the total social security amount goes down but possibly not as far as just her benefit.
You're correct, of course. My wording was sloppy. I was mainly trying to point out that the OP will need to contact Social Security to notify them of his FIL's death and that the payment she was receiving would drop. IMHO cash flow is the primary concern at a time like this, and the changing SS, pension, and tax situation is something to be thought through before optimizing anything else.
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Old 12-11-2017, 10:33 AM   #7
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Originally Posted by pb4uski View Post
Do your own research, but I think your MIL gets a stepped-up basis on the shares since California is a community property state... this would step up the tax basis of those shares to the NAV on your FIL's date of death and probably significantly reduce the unrealized gains of those shares.... so any capital gains would be minimal.
Great minds think alike ... I was just about to say the same thing. The new basis depends on the type of trust they have, so you really need to read those documents and consult an estate lawyer if anything is not crystal clear.

Check on the house basis as well. It may be worth having it appraised so that you know the value at his death in case she wants to sell it in 5 years.
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Old 12-13-2017, 05:01 AM   #8
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Community property gets a full (not just half) step-up in basis upon the death of a spouse. Read the trust or consult an attorney to see if its holdings are community property. If so, the taxable account and home would be fully stepped-up. If community property, ask the brokerage for a valuation of the taxable account on the date of death, and have them reset the basis in their records. Also have the house appraised as of that date.
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Old 12-13-2017, 06:20 AM   #9
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Great minds think alike ... I was just about to say the same thing. The new basis depends on the type of trust they have, so you really need to read those documents and consult an estate lawyer if anything is not crystal clear.

Check on the house basis as well. It may be worth having it appraised so that you know the value at his death in case she wants to sell it in 5 years.
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