Inheritance Question

[mindwozzle]

In late 2010, I'll receive an inheritance (~65-100K) from my grandfather (it's in a trust until I turn 25). I'm wondering what my tax obligations will be for it. A letter from the company managing the estate (which is now also in a trust) says the following:

"The specific beneficiaries (other than *wife*) will not have to report any income from the trust. The net taxable income will be designated on the trust tax returns as payable to *wife*, including the IRA income. Expenses, including our fees will be deducted from the reportable income."

I don't know much about inheritance/estate taxes, but it does seem weird that I'd receive the entire inheritance tax-free. Does anyone have any further information about this?

[MonkeyMama]

IT's not weird. The estate pays the taxes.

That's the simple answer - you get the after-tax remainder.

That being said, sometimes things like IRA distributions are taxable. IT doesn't sound like you are inheriting an IRA though.

As far as the trust - sometimes there is income taxed from the trust (the income it generates between the time the trust is created and when the money is disbursed). But it just depends. Basically the running theme is you aren't taxed on the assets themselves, but they may generate taxable income.

[frugal saver]

I agree with MonkeyMama's comments. But I have a further question--when the money is given to you at 25, will it still be in a trust, or will the trust be disbanded and the proceeds of the trust given to you?

When I inherited, I had to pay tax on the earned gains, but not on the money itself. But the trust was disbanded, and I had to deal with all the money at once, which was kind of overwhelming. Take the time now to do all the research, and find a qualified tax person (like a CPA), and make your plans.

One of the best resources I found was "The Inheritor's Handbook", but there's probably a few similar books available too.

[mindwozzle]

According to the will, "The principal and accumulated income of a fund created for a beneficiary shall be distributed to him/her upon attaining the age of 25 years." The way I read that, the trust gets disbanded at 25 and I'll receive the entire balance then.

The estate has been in litigation for various reasons, and it's likely to remain that way for the next year or two (maybe even past the time I turn 25), so I have no idea if the trusts for the beneficiaries have even been set up. My parents and the lawyers are working all those details out. The only other thing I know is that the bequest is supposed to be held in insured CDs or interest-bearing accounts, and not in the stock market. So there should be some interest, but nothing too significant with today's rates.

Thanks for the answers, the next problem will be what to do with the money when I receive it. I'll probably pay off my car loan, but the rest is up in the air since I don't want to squander it.

[kebark]

i guess your in the US, but in the UK i think that sum would be tax free as far as inheritance tax.

[thekid]

i guess your in the US, but in the UK i think that sum would be tax free as far as inheritance tax.

Ditto in Canada. No gift or inheritence tax.

[snafu]

frugal saver gave great advice, start your research now...no one looks after your money as well as you could. I sure hope the estate is not paying the lawyers as they could keep this going until their kids finish college!