Tax stuff

[tiredmommy]

So... a little history:

I am terrified about incurring a tax liability as we (brother and I) settle out our mother's affairs. She was by no means wealthy but I don't want any surprises next April, Know what I mean??

My fear comes from when my father finally was awarded soc sec disability when I was a teen and there was a BIG tax bill attached.

So there were two small life insurance policies that my grandmother had on her. I am beneficiary of one, I need to sign an affidavit about the other before I get any information on the second (the company can't disclose the beneficiary over the phone but I'm apparently in line to receive the payout). I will split this with my brother.

There is also a small GIC investment account in a Canadian bank that my brother and sister-in-law are chasing down, I stand to get half of that.

There is also a missing social security check from last summer. We stand to split that if the administration can see that the check wasn't cashed.

And finally, each of my parents had unclaimed funds being held by NYS. I have filed but my brother doesn't know yet because I don't want them to be hopeful it's a substantial amount when it's more than likely not more than a couple of hundred $$$ at most. They are struggling financially so I'd rather surprise them with a small amount than have them be disappointed that it isn't larger.

So... what to do about taxes? I'll be putting aside 30% of everything into a savings account so that I have funds to pay the tax man next spring. I'll split anything that's leftover with my brother (if any).

Does that sound reasonable?

 

[CrazyinVA]

You shouldn't incur any federal tax liability as far as I know (I never did when my mother died)

From the IRS: "Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. "

From the same publication: "Gifts and inheritances. Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you"

Double check your state tax laws, though.

 

[tiredmommy]

Thanks CV. I'm in NY so I'd be surprised if every penny weren't taxed. Also, the Canadian account is an investment account and the unclaimed funds are listed as dividends.

 

[Lothlorien]

Do you have an accountant? If not, you should find someone that is able to manage both NY and Canadian taxes and they can advise you. Even if you called a large tax co, like H&R Block, they might answer those questions for free.

 

[TerryJ2]

Great advice.

So sorry you have to worry about this.

I'm glad I read this. As my cousin is still living, I had an acct do her taxes ... all 4 yrs of them. While we were working on that, and sent in 1 check for about $1,000, the IRS got a hold of her checking acct and flagged it. When the acct had enough $, they took out $17,000. Yup.
Meanwhile, I continued to write checks, and paid/mailed about $10,000 because there were a few deductions.
Now, I've pd all the taxes and penalties, PLUS $17,000.

My little fingers are dancing over to the IRS webpage to reclaim the overpayment ... wish me luck!!! We need it for her rehab.

 

[KTMom91]

Re: the unclaimed property...The state may refuse your claim until you get your brother's signature on the form. My mom sent in info to claim property that California had for her father, who died in 1968, and they refused because she had a living sibling. Her brother signed recently, and Mom resubmitted. So far, no word from the state.

You can always call the IRS and ask them any questions you have, specify you want "tax law" since you're asking about a return that's not yet filed. Also, if you have an IRS TAC office nearby, you can walk in and ask your questions.

 

[trinityroyal]

Beyond the Canadian tax implications, I don't know if there are any inter-jurisdictional requirements that you'd have to fulfill. Probably best to get some professional advice.

 

[muttmeister]

I can't advise you about the Canadian stuff or the state taxes but you should not incur any federal taxes on this. We inherited what I considered a large amount a few years ago and you only pay federal on huge amounts (like in the millions). It seems to me that it would be worth the money to check with an accountant in your area. See if somebody you know knows of somebody good and trustworthy. In your situation, the fees should be minimal and knowing exactly what to expect should give you peace of mind, which is worth a lot,.

 

[busywend]

Now why did you not call your tax friend???

Inheritances are NOT taxable (unless they are very, very large like over $3.5million - you do not even have to mention it on your federal taxes unless it is higher than that. NY higher than $1m).
A good rule of thumb is this: if the deceased would have been taxed upon receiving it (retirement accounts), then you might be taxed. Life insurance would for sure not be taxed.