Suppose I have a crazy uncle who accumulated massive amounts of cash under his mattress over his lifetime. He dies, and in his will he bequeaths me a briefcase with a million dollars in cash. I go to my bank, deposit said cash, bank does their due diligence and asks where all that cash came from, and I tell them. Bank files their currency transaction report, and also a suspicious activity referral, because my claim that I inherited $1M, in cash, is indeed suspicious.
So then the IRS comes a-knocking. How do I convince them that it’s a legit inheritance on which I owe no income tax?
I’ve never inherited anything before. Is it normal to receive a copy of the official signed will with one’s inheritance? Presumably a death certificate would also be needed?
A bequeathment in a will goes through probate and is not a “tax-free inheritance”; the estate will pay the estate tax and probate fees, and then depending on the assessed valuation or cash value of the particular bequeathment you may also pay an inheritance tax. In certain cases you may also have to pay income tax (if it is a dispersement from a tax-sheltered trust or retirement fund) or property tax (if there are unpaid taxes or liens against the bequeathment, which can happen if the property is reassessed or if the deceased had debts secured by the property). A probated will is in the public record as it is part of court proceedings except in specific cases where some portion of the will may be sealed by the court for various reasons (contesting the legality, issues with assessment of the estate, et cetera) leaving it in the probate process. A living (revokable) trust circumvents probate by putting assets in the care of a trust that disperses them through the action of the trustee (presumably in accordance with the directions establishing the trust although the trustee may have wide latitude in determining how and when trust assets are dispersed).
In no case is someone (the deceased’s attorney?) just going to hand you a briefcase with a million dollars of ‘tax-free’ money to do with as you please without there being either probate or record of dispersement in place to verify from whence the money came and by whose authority. That only happens in bad mystery novels.
I received a few checks from my Moms estate. Both parents died within a couple weeks of each other. I believe their estate hasn’t gone through probate yet. But there were a few accounts that could be disbursed immediately. Probably because her children were named as beneficiaries.
Yes. Smaller estates, with a valid will often do not have to be probated. And a bank account, with “Payable on Death” (or similar term for a beneficiary) does not need probate either, just a death cert.
But Uncle Bill, with that large estate, would generally need to be probated. ianal.
Also NAL but this sounds like it is conflating two things together. Again NAL so perhaps I am missing something?
Probate is the process that reviews the will to determine if it is valid/authentic and which administers the deceased’s estate with or without a will.
In this case the briefcase having been found and probate determining that the will is authentic and valid, naming @Machine_Elf as the sole heir, probate would indeed distribute it to him, minus probate fees and debts owed by the estate.
Currently an estate that size would not be subject to estate tax at a Federal or most (?all?) state levels. Federal Estate tax does not kick in until $12.06 million and it looks like none of the states that have estate tax have it set under $1 million.
The question is whether or not there would be an investigation as to crazy uncle’s source for the money and if taxes had been avoided by him in its accumulation.
I do not think that the heir would need to prove that Uncle Nutso has not avoided paying taxes, but what would be the level of proof of such avoidance required by the authorities and which authorities? IRS or criminal justice asset forfeiture? The burden of proof would be on the authorities I am pretty sure but the bar might be low?
The government can easily keep the money away from the heir and possibly cause him all sorts of trouble of the basis of suspicion but in the end they have to come up with evidence that Uncle Nutso didn’t pay taxes on it when he acquired it or it was illegally obtained. Nobody wants to go through that nonsense though. A lot of the money can get burned up in lawyers fees in order to collect the inheritance.
But, if I am understanding this source correctly, the level of proof is lower than in a criminal proceeding:
So let’s say the IRS has no record of Uncle Nutso having paid taxes on income commensurate with having accumulated that much cash. Is that enough to meet the “probably” bar for the Federal crime of tax evasion? He had known criminal associations that ran suspected illegal gambling and gun sales ventures. How low is the “probably” bar?
Probably not, if the Uncle is dead and there is no evidence said Uncle was a drug dealer or something. If Uncle had been convicted of those types of crimes, then maybe.
Not in the USA. Taxes are levied against the donor, not the recipient.
In this case, the IRS will, no doubt, want to confirm your story and will want estate taxes. One million is not enough to trigger an estate tax. OTOH, the executor might have some 'splaining to do.
Not to fight the hypothetical or anything, but it’s cash. Why take it anywhere or attempt to explain it to anyone? Just use the cash over the years as walking around grocery/gas/entertainment money and put your legit income into the bank. After a while you’ll have a shitload of completely explicable money in your account along with the reputation of being quite the frugal saver. What your Uncle Sam doesn’t know about your Uncle Nutso is something you don’t really have to worry about. Get a stout safe and don’t sweat it.
Sure but then you have to worry about someone breaking into your safe or Uncle Sam asking about all of your cash transactions. Why do that when the source of the money is completely legitimate?
Uncle Sam does not keep track of this sort of thing nearly as closely as people are led to believe. Shit, my stepdad went something like 20 years without filing income taxes, had a business that did very well but didn’t file personal taxes AND he had a tidy side income from dealing very high end weed back when it was a felony. Never had a single question or cocked eyebrow, but my mom did insist he get it all straightened out before they married. Took them about ten years to get around to that lol. If you aren’t acting all hood rich and stupidy nobody notices a damned thing. I personally prefer to use cash, I don’t see any good reason why I should be leaving a trail everywhere for marketers and snoops to batten off of. As for the safe, even a cheapish model weighs like 200 lbs and is a stone bitch to move around. Put it somewhere unobtrusive with shit piled around it, don’t mention its existence to people and nobody’s ever going to bother you with it. If they do, that’s what dogs and pistols are for.
And sure, YOU know the money is legit but can you PROVE it? Asset seizure and property forfeiture are quite common in many states and they can grab your shit and keep it until you spend your time and money proving to THEIR satisfaction that it’s legit money and that can take years. From a practical standpoint I think I have the better course of action lined out here.
The problem - which is why money laundering - is explaining large amounts of cash. You can use cash to buy a used car, but if you try to spend $60,000 for a fancier new car, then that will pique Uncle Sam’s interest. Buying a house with cash (or even the down payment) gets into the high five to six-figure range. Maybe it will be a SAR or such reported to Treasury, but I assume they cross reference these by name and several will trigger a deeper investigation.
As for suspicion of legitimacy or not - the feds just have to say “this looks suspicious, this is how drug money is cleaned.” Then you can either decline to reply (and so, lose) or make your claim and try to back it up; then you still have to sound 51% more sincere than the fancy government lawyers. Any time the feds want, they can freeze your accounts, seize property etc. until your lawyers clarify the situation - a legal principle I would call the “500 lb gorilla” principle. If a DA can indict a ham sandwich, they can sure as heck get a judge to sign a seizure order.
Based on news reports from around the country (and including the Canadian government warning that travelers in the USA with large amounts of cash risk having the police steal it from them) the government is happy to take anything they can get their hands on and obstructive about the process of giving it back - failing to notify about court dates, postponing as long as possible, etc.
And back to the OP - if Uncle “Big Bills” Bill gave you the money before he died, it’s a gift and has to have been properly reported and taxed. Even if you die, you cannot escape that one last tax return, before worrying about estate taxes. If it was a real inheritance, then his lawyer dealing with his will would have handed over the suitcase after going through formal channels to account for it. Heck, he may even deposit it into the bank himself into the law firm’s trust account and just write you a cheque.
