In a few months, when the will clears probate, my father will inherit a few hundred thousand dollars from his late brother’s estate. Dad has a financial adviser, but he is a) fiscally conservative, and b)inclined to accept anything an authority figure tells him without question.
For those reasons, I’d like to get some ideas from you folks as to ways he might best avoid or minimize any inheritance or other taxes (legally, of course!), and any other strategies, hints, tips, that would maximize the amount he receives from the estate. Just to have some alternative ideas to suggest to him.
I don’t know any specific terms of the will, except that Dad inherits everything (I think) and that the total cash is in the low six figures.
My uncle hired a local fiduciary to handle his estate, and she is the executor. I don’t know what or how she is paid. Are there laws that specify what an executor is paid from the estate? Is it a percentage, or flat fee, or is that determined by the agreement between client and fiduciary?
If we have any doubts or problems with the performance of the fiduciary what recourse do we have? (There is no immediate reason to think there’s a problem, just some nagging doubts. But best to be prepared.)
If it makes any difference, Dad lives in Maryland, his late brother lived in Arizona.
My only advice is to tell you that it is the *estate * that pays taxes, not your father. Your father has options about what to do with the inheritance after he receives it but has no direct control over taxation that occurs before assets pass into his hands. That is pretty much up to how his brother did his estate planning.
That’s good to know, thanks. Is there anything that the executor/fiduciary can do that will alter the tax situation? Or is that all fixed in the terms of the will?
I believe that estates of less than $2 million are not subject to estate tax (although you also need to add any taxable gifts made during one’s lifetime to the value of the estate) so no, no estate taxes should be due.
Last time I checked, money, goods, or property which is inherited is not considered income. However, money received from the sale of inherited property is income, assuming that the proceeds from the sale is greater than the Fair Market Value of the property at the time of the decedent’s death. In other words, if your father receives as part of the estate, stocks valued at $25 per share at the time of your uncle’s death, then later sells some of that stock for $30 per share, the $5 per share is considered income at the time of the sale.
I hope I can get this in before they turn the server off. I did my mother’s estate in Maryland so I know a bit.
As has already been said your father will not pay any taxes when he receives money or items. The estate takes care of all of that. However, it will take some time, I took around 9-10 months total until the money was dispersed.
And now that I see the brother lived in Arizona I can’t say much. I would guess it would be similar to MD though in that the person taking care of the estate is entitled to 9% of the first $20,000 or so, then some smaller percent for the rest. There was also a small county fee based upon the total amount of the estate, I think I paid 2-300 for my mother’s estate of around 200k.
I thought I could be of more help when I saw your father was in Maryland. Sorry I couldn’t help more.
Unless your uncle’s estate is over $1 million after estate debts, there is no inheritance tax and it’s not counted as straight income (UNLESS- there are individual things you can inherit that can count as income- if your uncle leaves any unused part of an IRA for example, it’s taxable).
It’s a complex field, something you don’t want to trust people on a message board for answers to.
By far the best way to avoid taxes is to put the money in the Alabama based account of somebody who’s not related to you. As someone who loves these boards and the chance to help his fellow Doper, I will help you in this regard.
Thanks so much, Sampiro! I’ve mailed you a cashier’s check for $500,000, which is more than I want you to hold for me. So if you’ll send me back a check for $200,000, you can hang on to the balance, and keep $50,000 for your trouble.
But seriously, folks, thanks for the advice. It turns out that there’s a new wrinkle in the situation, but since it doesn’t have much to do with taxes per se, I’ve started a new thread here.