[nietz001]

I have been asked to be Executor of a somewhat large estate (1.5 mil) It will be equally divided 3 ways. Assets include a home, stocks and some art. I want to avoid paying Estate Tax and inheritance taxes. My plan is to have my parents immediately start Gifting 12K each to the 3 beneficiaries for a maximum of 192K per year (3 children and 5 grandchildren) until there is nothing left but the home. When only one parent is left I will have them change the deed and put me as co-owner. The art and other items (Cars, furniture etc) can just be divided. Is this a good plan to avoid paying extra taxes? I really have no idea except for what I have read today on the internet.
Jeff

[ebaines]

If your parents passed away today, there would be no federal estate tax due, since the unified credit amount is currently $2M. Of course it's possible that the value of the estate may grow to surpass the $2M threshold, so I would suggest that your parents consult with someone experienced in estate planning. An estate planner may recommend that your parents consider each setting up marital trust in their will, which can have the effect of doubling the $2M credit, so that by the time both parents pass away a total of $4M is shielded from estate tax. This can get complicated and a qualified estate attorney should be consulted. Giving away $12K/year is not a bad idea, but of course your parents should keep enough of their assets to support themselves and take care of unforeseen circumstances.

[AtlantaTaxExpert]

Ebaines covers the pertinent issues, but you need to employ a competent estate planner to develop a proper plan to transfer the assets from parents to children.

[nietz001]

I'm actually more concerned about the inheritance taxes. Most of the assets are in stock, how in the world do I transfer them to beneficiaries without paying big capital gains by transferring too much money from stocks to something like CD's

[ebaines]

When a person dies the tax basis for the stocks in his estate automatically "steps up"to the market value on the valuation date, which is either the date of death or the value 6 months later. If estate taxes are due, the amount is based on the value on one of these 2 dates, and then once the assets are passed to the heirs their tax basis is this same value. Hence the heirs have an opportunity to sell and diversify the assets after that with minimal capital gains implications once they receive them.

[ScottGem]

Your questions indicate the NEED to consult an Estate planner. While a good planner might cost you (possibly $10-$25K), it will probably be made back in tax savings and preventing mistakes.

[AtlantaTaxExpert]

Agreed!

I stick by my original recommendation: Go find an estate planner, or at least a fee-only Certified Financial Planner.

[nietz001]

My parents have their money invested in stock, they also have annuities, 401's, IRA's, bonds, CD's etc. Sounds to me like the best advice to them is leave the money where it can make the most interest and if they Will it to me the Capital gains are erased at the time of death. It's not just for me, I have 3 brothers and I just want my parents money to go where they intended. I should be able to sell the stock and divide it 4 ways without any capital gains if I sell it soon after they are gone. Most of the accounts are already POD so there should be no issue with probate. If I co-own the house with the surviving parent that should about take care of their assets.

[ScottGem]

IRAs and 401Ks are paid to a beneficiary outside of the estate. CDs and (I think) annuities can be paid to a joint tenant outside the estate. The same with real property.

So that leaves the stock and mutual fund investments. I would suggest letting them go to the estate so you have something to pay final debts and funeral expenses. In the meantime, they can divvy up some of the CDs and retirement accounts between the siblings, or they can set you as the beneficiary and trust you to divvy things up.

[nietz001]

Would I have to pay any taxes on money I inherit from a 401K? My Dad has one with $300K in it, if he drew it out they would be taxed 50%. If he leaves it alone would I get the entire $300K? Without paying tax on it?

[ScottGem]

You would still be subject to inheritance taxes, but since that's under the threshold there is none. I'm not quite up on the tax consequences of a beneficiary inheritance of a 401K. I believe it can be rolled over into an IRA to defer the taxes. WHEN you finally take the money out, you will have to pay income taxes on it.

See:

Inheriting A 401k, IRA, or 403b

[AtlantaTaxExpert]

Agreed, though the rollover has to be handled correctly. You should get estate and tax advice from qualified professionals.