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Author: footsox Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5741  
Subject: Beneficiary on bank acct. Q Date: 11/5/2009 4:01 PM
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I think I am understanding that if a person names a beneficiary on their bank account, IRA, etc., then that account goes directly to the beneficiary and it does not go through probate. If that is the case, is there no inheritance tax paid on that money that goes to the beneficiary? Does that money just go to the beneficiary with no tax consequences?

Some of you have been reading my previous posts -- My mother is early Alzheimers and without a Will because she is very stubborn. I am trying to do everything I can to avoid as much probate, attorney's fees, etc., as I can. There is no Will and there is not going to be a Will, so I am going to "Plan B" and trying to do what I can to avoid as many fees, and probate as I can... thanks for any info. I appreciate it.

Footsox
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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5433 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/5/2009 4:07 PM
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footsox: "I think I am understanding that if a person names a beneficiary on their bank account, IRA, etc., then that account goes directly to the beneficiary and it does not go through probate. If that is the case, is there no inheritance tax paid on that money that goes to the beneficiary?"

There is no federal inheritance tax. Inheritances taxes, where they exist, are creatures of state law (and will likely vary from state to state where there eexist).

WRT federal estate tax, I am about 99% certain that IRA's count in the gross estate of the deceased (even though they pass outside probate) and 95% certain that the banks accounts also similarly count in the gross estate.

"Does that money just go to the beneficiary with no tax consequences?"

Definitely not! IRA or 401k money may be taxable to the beneficiary when withdrawn from the IRA or 401k (the same as it would have been in the hands of the deceased).

Good luck. And do consult with a NY attorney versed in estate law.

Regards, JAFO

NOT LEGAL OR TAX ADVICE; DO NOT RELY.

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5434 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/5/2009 4:07 PM
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I think I am understanding that if a person names a beneficiary on their bank account, IRA, etc., then that account goes directly to the beneficiary and it does not go through probate. If that is the case, is there no inheritance tax paid on that money that goes to the beneficiary? Does that money just go to the beneficiary with no tax consequences?


Inheritance tax is due on all the assets in the estate, and is completely separate from how they are passed [i.e. as beneficiaries or through probate]. Typically, I think what happens is that the assets with a beneficiary pass directly to that person, and that any estate taxes are then paid out of the probatable estate. That could mean that anyone who inherits via the will loses out a portion of what they would have inherited to estate taxes while the beneficiary gets the rest.

In addition, things like final expenses and all the deceased's debts will be paid from the probatable estate as the other money goes directly to the beneficiaries.

I believe that in the case of there not being enough assets to pay for the taxes [not sure about debts, but I'd be willing to believe that the same is true there], then the assets passing outside of probate can be seized to pay those taxes.

Might be best to ask this question on the tax strategies board.

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Author: footsox Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5435 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/5/2009 6:44 PM
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Thanks for all the info. I have read somewhere that if you are a beneficiary on something simple like a savings account (not an IRA or 401K, etc.), then when that person dies, and you are the beneficiary, you can simply go to the bank and present proof of who you are and a death certificate and the financial institution will then pay you that money in that account.

To me, I can't imagine the IRS letting this all happen without someone paying some tax. So, I am thinking that what was said here in the previous post, is that the account with the beneficiary is counted toward the assets of the estate and the heirs to the estate then would have to pay the inheritance tax.

In my situation, I would be the beneficiary and also one of the heirs of the estste. So, the account with me on it as the beneficiary would pass to me simply, and without probate. Since my mother does not have a Will and is not going to have a Will, I am trying to figure out how to keep as much out of probate as possible.... Thanks.

Footsox

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5436 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/5/2009 8:18 PM
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footsox: "Thanks for all the info."

If I am included in that, then your welcome.

"To me, I can't imagine the IRS letting this all happen without someone paying some tax. So, I am thinking that what was said here in the previous post, is that the account with the beneficiary is counted toward the assets of the estate and the heirs to the estate then would have to pay the inheritance tax."

I am sorry, but you really need to get your language right, or you will get bad information.

Estate tax and inheritance tax are two different kinds of taxes. Estate taxes are paid by the estate (by and throguh its executor) before the estate distributes anything to the heirs. Inheritance taxes are paid directly by the heirs after they inherit. Inheritance taxes are only at the state level, and as I understand it, not all the common. IIRC, most state piggyback off of the federal estate tax.

"An inheritance tax is an assessment made on the portion of an estate received by an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed to individuals. It is strictly a state tax. Eleven states still collect an inheritance tax. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee."

http://retirementliving.com/RLtaxes.html

No vouching for the URL that is cited.

"In my situation, I would be the beneficiary and also one of the heirs of the estste. So, the account with me on it as the beneficiary would pass to me simply, and without probate. Since my mother does not have a Will and is not going to have a Will, I am trying to figure out how to keep as much out of probate as possible."

If she has Alzaheimer's, then you need to be careful that any move you make to keep assets out of the estate does not favor you over any other heir who would inherit under the intestacy law of the applicable state (NY, IIRC).

NOT LEGAL ADVICE; consult your own attorney.

Regards, JAFO

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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5437 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/6/2009 7:13 AM
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Hiya footsox,

All of the above just goes to prove that you need to talk to an attorney in New York State. One who specializes in estates and taxes. I suggest that you consult one now, for an hourly fee. One hour should be enough - you're asking pretty simple questions that should roll off a good attorney's tongue instantly.

Here's what I know (but you should never take legal advise from an amateur!)

1. There are no inheritance taxes in New York state. Inheritance taxes are paid by the beneficiaries (that's YOU), not the deceased's estate. Thank God for little favors. New York's got plenty of taxes, but NOT inheritance taxes (some states DO).

2. From the description of your Mom's assets in a previous post, her estate will not owe Federal Estate Taxes. Estate taxes are paid by the estate, not the beneficiaries. Depending on what year she dies, the amount excluded from Federal Estate Taxes will vary, but from your description, her estate is well under a million dollars, and if that's the case, she won't owe these.

3. Sadly, New York State is one of the states that has STATE estate taxes, and the amount allowed to pass without paying these is MUCH lower that the Federal exclusion. Your Mom (not YOU) MAY owe some NY state estate taxes. One good thing - the rate at which NY taxes estates isn't extremely high. The way that the amount (if any) that her estate will pay is this: your attorney (or you, if you're competent enough to fill out tax forms) submits a FEDERAL state tax form 706 (she'll most probably owe $0, but you submit this form to the IRS to show them that she owes $0). Then you use the federal form's results to fill out the state's form (I don't recall the number.) It's very much the way you use your 1040 to get the answers to fill out your state income tax.

4. If your Mom has retirement funds such as an IRA, she HAS listed beneficiaries with whomever is holding the funds. These funds, if any, ARE in her estate. They pass without probate. The beneficiaries can roll them over into inherited IRA's, but all money withdrawn (unless it's a ROTH IRA)will be reported on the income tax forms of whoever owns the IRA.

5. Her bank accounts etc., if they have named beneficiaries, just get handed over to those beneficiaries without probate. Just don't spend any of it till her estate taxes, if any, are paid to the Fed and to NY state. The funds go to the named beneficiaries (after the funds' share of any estate tax is paid) REGARDLESS of any will she may have written.

Looks to me like you're in pretty good shape. YOU and your sibling won't owe any taxes UNLESS one or both of your live in one of those states that have INHERITANCE taxes. Your Mom's estate may owe some NY estate tax, but it won't be a lot. You may have to hire and attorney (that expense would be paid by the estate before what's left is distributed) to do things you may feel incompetent to do yourself, such as fill out the aforementioned tax forms, petition the court to have you appointed executor (since she has no will with a named executor), and change the deed on her house. Depending on how competent you are and how much free time you have, you can actually do these things yourself. I guess most people choose to hire an attorney, but you might consider hiring one to guide you in handling the things that need doing, and arrange a smaller fee if you agree to do a lot of the work and he just does what you can't or won't.

Trini

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Author: footsox Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5438 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/7/2009 2:04 AM
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Wow. Thanks guys. So much great information! I think I am figuring this all out. Since I live in Florida and my mother lives in New York State, then I will be hiring an attorney to do most of the work.

Since my mother doesn't have a Will and refuses to make any effort to get one, I am just trying to look ahead at the situation and get a rough picture of what will need to be done and maybe avoid some of the probate/fees/taxes, etc. Thank you all so much.

***To any of you reading this, please take my advice and get a Will written so your loved one doesn't have to do what I will have to do, and also lose a lot of money.***

Footsox

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Author: crocket838 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5439 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/8/2009 11:58 AM
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My mother is early Alzheimers

Please keep in mind also that if she requires assisted living, she will have to spend down her assets before medicaid kicks in. She could run thru that money before she dies and there will be nothing left to probate.

Crocket

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Author: footsox Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5440 of 5741
Subject: Re: Beneficiary on bank acct. Q Date: 11/10/2009 2:24 AM
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Good point. I am probably getting all worked up over $4 she will leave to me. ;-)

Footsox

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