Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Estate Asset Transfers

Posted by taxguru on September 11, 2007

Q:

Subject: Estate Taxes

My wife died with a will that basically leaves everything to me.  Two houses were right of survivor,  One CD she owned alone that was pod.  Both of her iras were also pod.  The only thing she had in her name alone that wasn’t pod or ros was stock valued at about $13K.  The total value of the above was about 700K.  My attorney says that I can pass any amount of the above to our two children without any tax consequences.  It seems strange that the amount is an option.  I want to pass along to them as much as I can afford without putting myself in a cash bind, however it seems odd that I can pick an amount in lieu of dividing everything in half and giving them her half.

 

I ask my accountant and to be honest I was as confused as I was after discussing it with my lawyer.

 

Thank you,

 

 A:

There is obviously a bit of miscommunication here, both with your attorney and your accountant.  The transfer of ownership of the assets left behind by your wife is neither as simple as you are inferring from your attorney’s comments, nor should it be as complicated as your accountant is making it out to be.

Each type of asset needs to be evaluated separately in regard to its taxability for the recipient, as well as its new stepped up basis for the recipient’s records.  You didn’t say if you are in a community property state or not; but that fact is very important.  If so, the entire cost basis of most of the assets is stepped up to its fair market value as of the date of your wife’s death; while in non community property states, only the half owned by her is stepped up and your original half remains the same.

As your advisors should be explaining to you, most of the assets will pass with no tax consequence, with the main exception of the IRA accounts.  Depending on what types of IRAs those are (conventional, non-deductible, Roth), they will most likely be taxable to the recipient, unless they are properly rolled over.

Your best bet would be to sit down with your legal and/or tax advisors and go over each item in your wife’s estate individually and discuss these points.  If neither of your advisors feels comfortable discussing these items in easy to understand terms rather than blanket generalizations, you will need to find a new advisor to work with; at least just for this matter.

I wish I could be more help, but that’s all I can do for you at this time.  Good luck.  

Kerry Kerstetter

 

 

 

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