In general, how is willed estate stuff handled?

[Uncommon_Sense]

Just in generalities. I’m going to head to the nearest financial broker, accountant, tax-guy as soon as the tallies are all in and probate does their thing.

There was a will, all assets to be divided between four siblings.
The basic assets are;
Cash
personal property to be sold (furniture, collectibles, antiques, etc)
bonds to be cashed
two cars to be sold
one house, which is paid for and in the clear

I haven’t spoken to a professional anything yet, but I want some talking points and some background info so I can understand the basics and have a somewhat level understanding without plowing through books, tax laws and such.

Some of the things rattling around in my head are;

Captial gains tax - Does that apply to inherited property and the eventual sale? And how does splitting it four ways matter? Also, will the tax apply to the difference between the original purchase price and the eventual sale price (bought in 1950 and the difference estimated to be about $150,000)

Cash - can some be considered a gift for tax reasons?

Personal property - sold and lumped in with cash?

Bonds - sold and lumped in with the above two?

Cars - sold and lumped in with the above three?

We also plan on doing some modest renovation to the home, about $8,000 worth, if that matters. New carpet and flooring, paint, and some other small stuff.

Thanks for your meager guidance in this matter!

[DSeid]

What was the date of death? The rules are different if death was in 2009 or 2010.

If death occurred in 2009 then there is no estate tax on an estate valued at up to $3.5 million I believe. And an unlimited step-up as far as capital gains (thus no capital gains tax on estates). In 2010 there is no estate tax on any size estate (for this one year it is repealed completely) BUT estates are subject to capital gains taxation for anything over the “step-up” of $1.3 million for non-spouse heirs. and if you can’t prove what the basis was then it must be set at zero. Congress might change the 2010 rule however, who knows?

The estate is, I believe, all property of all sorts. And the expenses of the renovation are paid out of the estate at the discretion of the trustee.

[Uncommon_Sense]

@DSeid

What was the date of death? The rules are different if death was in 2009 or 2010.

If death occurred in 2009 then there is no estate tax on an estate valued at up to $3.5 million I believe. And an unlimited step-up as far as capital gains (thus no capital gains tax on estates). In 2010 there is no estate tax on any size estate (for this one year it is repealed completely) BUT estates are subject to capital gains taxation for anything over the “step-up” of $1.3 million for non-spouse heirs. and if you can’t prove what the basis was then it must be set at zero. Congress might change the 2010 rule however, who knows?

The estate is, I believe, all property of all sorts. And the expenses of the renovation are paid out of the estate at the discretion of the trustee.

DOD was in 2010.

[Dewey_Finn]

@Uncommon_Sense

Captial gains tax - Does that apply to inherited property and the eventual sale? And how does splitting it four ways matter? Also, will the tax apply to the difference between the original purchase price and the eventual sale price (bought in 1950 and the difference estimated to be about $150,000)

I believe that upon eventual sale by the heirs, the capital gains tax is owed on the difference between the sale price and the price on the date of death. In other words, you receive a cost basis stepped up to the value at death. So you will want to establish the value on that date. Another reason you’d want to do so is to ensure that there is an equitable distribution of assets to the various heirs.

[md2000]

Also - not sure about American law - but I would imagine the basis (original price) should include any significant improvements to the property after the original purchase - ie. garage, paving, pool, additions. As mentioned the fun is finding any of these numbers for what could half a century after.

Again, if it’s like Canadian law - the executor can do whatever they feel is reasonable and brings the best return to the estate, since that is seen as their duty. If the renovations improve the sale value of the home, great. If they are a means to give one heir a special deal, no. If one heir would like to take something instead of selling it for cash, then the executor should establish fair market price to the satisfaction of all heirs.

Not sure the executor can “gift” anything if it does not say so in the will. However, if he is equitable and nobody contests it, I guess the only question is whether the IRS allows it. If the estate is small enough to be tax-free, why bother?

But yes, basically all should be sold for fair market value or what it will fetch in a fair sale; then the proceeds are divided according to the will’s instructions. The executor may take whatever reasonable expenses (lawyer’s fees, sales commissions) from the estate first.

When we went out for dinner at a fancy restaurant with my late mother’s husband after the memorial service, my brother said “thanks for paying for dinner.” He was her executor and replied “Oh, don’t thank me, thank your mother.”

[DSeid]

Then you are, for now at least, under those bits as mentioned above. And only the difficult bit may be figuring out the whole capital gains bit. If it was a very large estate then this was, financially, a good year to die.

Mostly though you will have to wait to see if they change the rule during the year; many expect they will and that it will apply retroactively for the whole year.

Disclosure: I am not a financial planner, accountant or lawyer. But as my Mom died at the very end of 2009 I did read up on this stuff some.

On preview, Dewey Finn obviously didn’t bother to read my post. Again, as of now, that “step-up” is limited, as noted. 2010 only. Unless Congress changes it.

[Uncommon_Sense]

@DSeid

Then you are, for now at least, under those bits as mentioned above. And only the difficult bit may be figuring out the whole capital gains bit. If it was a very large estate then this was, financially, a good year to die.

Mostly though you will have to wait to see if they change the rule during the year; many expect they will and that it will apply retroactively for the whole year.

Disclosure: I am not a financial planner, accountant or lawyer. But as my Mom died at the very end of 2009 I did read up on this stuff some.

On preview, Dewey Finn obviously didn’t bother to read my post. Again, as of now, that “step-up” is limited, as noted. 2010 only. Unless Congress changes it.

can you riefly explain what “step up” means? The whole estate will probably come in at under $300,000 if that matters.
if capital gains is applicable on the house it will be about $150,000.

[DSeid]

Investopedia does it better.

In most cases, when an asset is passed on to a beneficiary, its value is more than what it was when the original owner acquired it. The asset therefore receives a step-up in basis so that the beneficiary’s capital gains tax is minimized - because it is not based on the increase in value from the original purchase price. For example, say your uncle purchased some shares at $2 in 1968 and he left them to you upon his death, at which time the shares are $15. For tax purposes, the shares would receive a step-up in basis, meaning your cost basis for the shares would become the current market price of $15. So, any capital gains tax you pay in the future will be based on the $15, not on the original purchase price of $2.

That step up was unlimited prior to 2010; now it maxes out at $1.3 million. High enough that it doesn’t matter for your situation: you shouldn’t have any estate tax or capital gains to pay. You will have fees to the probate attorney, etc. Barring a will that instructs otherwise the rest should be divided between you four ways with value given for non-monetary items taken.