Estate Question

[TromboneAl]

My 90 year old mom's health is failing, and she will probably be gone within a few months.

In terms of probate, etc, would it make sense to have her just add my sister's name to her accounts? Would that avoid any time, money, or taxes, or would it be better just to wait and deal with the will?

Thanks,

[Martha]

Does she have other assets to probate? Does everyone want your sister to have the money in the accounts?

It won't save taxes. Does she have a taxable estate?

[TromboneAl]

Thanks, Martha.

I'll know more when I go up there, but I think she has a checking account and some mutual funds.* I don't know if they are IRAs.* Nothing substantial.

There's plenty of trust and goodwill in the family, so everyone would trust my sister to have the money and distribute it.* I realize that we should be careful to document everything.

Quote:

Does she have a taxable estate?

She lives in my sister's house. I assume she has taxable accounts. Did I misunderstand?*

I found this Nolo Press article, that was helpful:

Avoiding Probate

[brewer12345]

Quote:

Originally Posted by TromboneAl There's plenty of trust and goodwill in the family, so everyone would trust my sister to have the money and distribute it.* I realize that we should be careful to document everything.

Al, the jokes go in another thread. :P

I suspect that the addition of a POD (payable on death) designation to your mom's accounts might be quicker and cleaner than jointly titling the accounts.

[Martha]

I was wondering if she had enough assets to worry about estate taxes. The federal exemption is now $2,000,000 and some states are less. But it sounds like that is not an issue for her.

There will be a final tax return to be filed in the year of her death if she has enough taxable income to require a return.

If she has an IRA, the beneficiaries will at some point have to pay taxes on the distributions. They should check on their options as they may be able to stretch out distributions and the obligation to pay taxes on those distributions, over a period of time.

If all accounts are held jointly, or are payable on death, or have beneficiary designations, and she has no other assets you should be able to avoid probate.

The only technical worry I would have about making accounts joint with the sister and having her distribute the money is the possible gift issue. If she ends up distributing more than the gift tax exclusion of $12,000 to one person, this could be considered a taxable gift.

Maybe make the accounts payable on death to all the heirs?

[wabmester]

Quote:

Originally Posted by Martha The only technical worry I would have about making accounts joint with the sister and having her distribute the money is the possible gift issue.* If she ends up distributing more than the gift tax exclusion of $12,000 to one person, this could be considered a taxable gift.*

If they simply retitled the account, wouldn't the kids also lose the stepped-up basis?

[Martha]

Thanks wab.* I was thinking bank accounts/cash.

If the mutual funds are NOT in an IRA, you do not want to retitle the account.* As wab says, you want the step up in basis.* *I don't know if mutual funds have a way of naming a beneficiary or if you have to probate the accounts.* Anyone else know?

EDIT: I see Vanguard allows beneficiary designations for mutual funds, even in non-retirement accounts.

[TromboneAl]

Quote:

Quote: There's plenty of trust and goodwill in the family, so everyone would trust my sister to have the money and distribute it. I realize that we should be careful to document everything. Al, the jokes go in another thread.

LOL

Quote:

wouldn't the kids also lose the stepped-up basis?

Could you explain that for me?

[Martha]

Stepped up basis is what you get when inheriting assets. If you inherit a stock that your aunt bought for $2 a share and it is now worth $40 a share, you get to use the value at her death as your basis when you sell the stock. So if you sell for $45 your gain is only $5, not $43.

Same for real estate. Property gets appraised at death and the heirs get that value as their basis.

But if assets are gifted to another before death, you get the basis of the giver. So if aunt gave her stock away before she died, and it had a basis of $2 in her hands, the gift recipient would get that $2 basis as their own basis.

Cash money doesn't matter. It is what it is. So it is ok to make bank accounts joint accounts.

IRAs don't matter either. Either way when money is pulled out of an IRA, before or after death, ordinary income taxes have to be paid.

[crazy connie]

One thing you do want to be cautious of is health care being covered by Uncle Sam. He can go after assets realigned within 3 years if need be. But if at home care is covering the situation that becomes a moot point. Just a heads up.

[TromboneAl]

Quote:

If you inherit a stock that your aunt bought for $2 a share and it is now worth $40 a share, you get to use the value at her death as your basis when you sell the stock.

But somewhere the government gets to tax the run up in value from $2 to $40, right? Is that taxed as part of an inheritance tax?

[cute fuzzy bunny]

Nope.

One of the few free lunches out there.

[Scrooge]

It used to be that you could die any time you wanted. Now, what with the changing tax laws circa 2010, you have to time it just right. Sigh...* :

[crazy connie]

Quote:

Originally Posted by Scrooge It used to be that you could die any time you wanted. Now, what with the changing tax laws circa 2010, you have to time it just right. Sigh...* :

If they do not repeal the estate tax which is scheduled for 2011... New Years Eve 2010/2011 should be a very good time for morticians!!!

[Martha]

Quote:

Originally Posted by TromboneAl But somewhere the government gets to tax the run up in value from $2 to $40, right? Is that taxed as part of an inheritance tax?

As the other posters said, this is one of the few free lunches out there. The federal exemption from inheritance tax is currently two million. Even if you don't have a taxable estate there is a stepped up basis.

Frankly, I don't think it is fair.

[unclemick]

No so with inherited E Bonds - cause the accrued interest somebody's got to pay - either the estate or the inheritee.

heh heh heh - learned that when my Mom passed.

[LOL!]

Having joint accounts with her daughters was not particularly helpful when my mother-in-law died.* Since the assets in the accounts were MILs to begin with and no contributions from daughters, they entire assets were deemed hers and part of her estate.* *All stocks and mutual funds received the stepped-up basis to value on date of death.* But heirs had to pay long-term capital gains taxes on the 45% increase in average stock value between date of death and final dispersal of assets.

While there were no Federal estate taxes, the state estate taxes were about 3%.

For some reason, many folks think that if they hold accounts jointly that their heirs avoid inheritance taxes.* *One also reads about re-titling the house to share title with child.* Where does this myth come from?

Consult an attorney.

[youbet]

Quote:

Originally Posted by TromboneAl There's plenty of trust and goodwill in the family, so everyone would trust my sister to have the money and distribute it.* I realize that we should be careful to document everything. She lives in my sister's house.* I assume she has taxable accounts.* Did I misunderstand?*

If Mom has been living with and receiving care from Sis for any significant period of time, you might want to be sure that Sis receives an appropriate share of Mom's estate.* It doesn't sound like it will happen with your family, but we're all aware of caregivers being grossly undercompensated at estate dividing time!* Seems like the years of sacrifice are quickly forgotten when a few bux are at stake. In fairness, perhaps Sis should receive it all?

[Martha]

Quote:

Originally Posted by unclemick2 No so with inherited E Bonds - cause the accrued interest somebody's got to pay - either the estate or the inheritee. heh heh heh - learned that when my Mom passed.

Greg inherited a few eebonds when his dad died. He doesn't have to pay taxes on the interest until they are sold, but he has to pay then.

[Martha]

Quote:

Originally Posted by LOL! Having joint accounts with her daughters was not particularly helpful when my mother-in-law died.* Since the assets in the accounts were MILs to begin with and no contributions from daughters, they entire assets were deemed hers and part of her estate.* *All stocks and mutual funds received the stepped-up basis to value on date of death.* But heirs had to pay long-term capital gains taxes on the 45% increase in average stock value between date of death and final dispersal of assets. While there were no Federal estate taxes, the state estate taxes were about 3%. For some reason, many folks think that if they hold accounts jointly that their heirs avoid inheritance taxes.* *One also reads about re-titling the house to share title with child.* Where does this myth come from? Consult an attorney.

As I indicated above, the federal estate tax exemption is now $2,000,000, but states may have lesser exemption amounts. If she is in California, the California exemption is the same as the federal exemption.