Inheritance and taxes

This Christmas has been especially trying for us. My husband just started treatment for prostate cancer and his mother died on Tuesday. The only good that will come of this is that he is due to inherit quite a bit of money from her trust and the sale of her apartment, which I know will affect our taxes. The question is “When?…this year or in 2016?” Her death date was 12/15/15, so I know that will affect stock capital gains taxes, but what about the money in IRAs and other things. If we don’t actually get a check from the bank (where her trust is administered) until 2016, will the bulk of taxes come due next year or this year?

So much is going on right now, I’m trying to think for both of us and I’m not the best money manager. I appreciate any insight you can offer
Thank you,

Terry Says:  Oh, I am so sorry to hear about your situation.  The first question is “what taxes”?   If her taxable estate was above $5.43 million (combined with all major gifts she made during her lifetime), then the ESTATE would owe Federal estate taxes.  (Some states also have their own separate estate tax, with estate limits lower than the Federal exemption.)  The executor of the estate would be required to file a tax return for the estate,  typically within 9 months of the death.   The value of the estate is determined as of the date of death,  which is why you would want to value all stocks as of that date.  Then the beneficiary of the stocks gets that price as a “step-up” starting point from which to calculate capital gains taxes when he/she sells the stock in the future.   If the value of the estate is below that limit, there are no Federal taxes

If your husband, her son, is the beneficiary of this estate, he does not have to pay taxes on what he receives!   That is all paid by the estate, so money is kept in reserve and not all distributed, in order to have the cash to pay any estate taxes that might be due.    Especially under these circumstances, you should have an estate planning attorney, in the state in which your mother-in-law died,  handle these issues — but keep a close watch over all the assets.  If your husband is unable to act as executor, there is probably a secondary executor named in the will.  Check with the attorney who prepared the will.  You might get lucky and find it was all in a revocable living trust, which could simplify the process.  But still consult an expert attorney.

I can think of nothing that must be done by year-end, but just a first conversation with an attorney with expertise in this area will confirm that.  You should however, contact the funeral home and make sure you order a dozen or more certified death certificates, as these will be required to change title on assets that go through the probate process.

Then, once the fog of all of this lifts, you will need some financial advice you can trust.    Please write back then and I will point you in the right direction.  Your only tax issues  — for yourselves — will come as you start to earn income on the money you receive, or sell inherited stock.   In the meantime, you need to deal with your grief and your husband’s health with some peace of mind about  the estate issues.  This won’t be a good holiday season — but it CAN be the start of a better year ahead.