You may very well be overthinking it. If you can, you should delay taking any money until the new year. Anything you receive in 2015 will need to be reported on Profile, and also reported as an asset if you still hold it on the date that Profile is filed. From your perspective, there is no need to divide the amounts up into $14k chunks per person given over multiple years. This is only a way to avoid the possibility of the estate having to pay inheritance/gift tax, and that will only be a concern on the federal level if the value of the estate plus gifts that your MIL made during life that exceeded the annual gift tax exclusion equals more than $5.34 million. If your MIL’s state has an inheritance tax, there may be a lower exclusion amount which comes into play for state taxes.
You are not overthinking this- but based on the information you have provided, you are also not getting good advice from your family members.
For example- your SIL does not need to hold back money to pay taxes (I’m assuming she means capital gains taxes) on your portion of your MIL’s money. why? When someone dies, there is a one time only deal from the IRS- one time only- and the portion of the stocks that you inherit get “stepped up” for tax purposes. If your SIL sells the stock, THEN gives you the dough, you have lost that step up tax benefit forever. Did your MIL have an IRA? The laws on that distribution are very complicated but have big tax implications for you if not done correctly.
If you are the heirs with the greatest need than you have the greatest incentive to make sure that someone isn’t making hasty decisions which cost two thousand here, three thousand there- which for the other heirs may be inconsequential, but which might be important for you.
Just to give you an example- SIL is NOT gifting MIL’s money. Gifting is a very specific activity according to the IRS. SIL can gift her own money but she can’t gift money out of an estate (assuming she is the legal executor/personal representative depending on your state). A distribution from an estate is NOT a gift, and is NOT subject to the gift limitations, etc. But it does have its own legal requirements.
I am concerned that you are getting shafted here (with all good intentions- I assume your SIL just wants you to get your money as quickly as possible). An executor getting sound legal advice is going to maximize the value of what gets distributed to the heirs- while following the terms of the will and the law and the IRS and the laws of the state where your MIL lived. If that means a delay in the distributions- that’s what it means.
A good lawyer is going to be able to help the executor with the complication of the other dead relatives as well. Whether or not your MIL was going to inherit from her brother in no way changes the fact that if your children were named in the great-uncle’s will they ARE going to inherit from him. If that money passes through your MIL’s estate or goes directly to them… you need a lawyer. Especially if they are minors, and especially if you don’t exactly know what the brother’s will stipulates which I’m assuming you don’t. If they are heirs they should have gotten a copy of the will by now, sent registered mail, from the executor of HIS estate, since he died a year ago (if my math is correct).
Just to clarify … Are you saying that in the spring she can write us a check for $75K out of that account and that there are no tax implications for us? Or her?
I wouldn’t make that assumption. The estate may owe other taxes.
There are no tax implications for you. Gifts and inheritance are generally always tax free to the recipient. (I say generally because there are exceptions. For example, an IRA funded with pre-tax dollars will be subject to tax when distributions are made to the beneficiary.) Whether or not there are tax implications for your MIL’s estate (or the gift giver if the money is a gift as opposed to an inheritance) depends on the size of the estate or the amount that the gift giver has previously given. Gift tax accrues to the gift giver, not the gift receiver. Likewise, inheritance tax accrues to the estate, not the heir.
In 2014, the federal estate tax exclusion was $5.34 million. This means that if the value of the decedent’s estate at death, plus the part of any gifts that the decedent made during her life that exceeded the then current annual gift tax exclusion, does not exceed $5.34 million, there will be no federal estate tax owed.
Belknap- that’s my point. The estate may own back real estate taxes on the MIL’s home- and won’t be able to sell it until those are paid. The estate may owe 2014 income taxes for the period when the MIL was alive. The MIL may have filed an extension for 2013 but nobody in the family realizes that she didn’t complete that tax year when she passed.
But the estate shouldn’t be selling stock and paying tax on the capital gain.
Which is why I’ve asked if there is a lawyer involved.
I have been an executor, and I know the heirs involved were aggravated with me that I didn’t just sit down with the checkbook and start handing out “gifts” out of the checking accounts.
And the idea that the estate needs to keep under the 14K gift tax limit on distributions- where did that come from???
OP- have you seen MIL’s will, and has there been any official communication from the Executor?
Others posed questions upthread about whether this was really an inheritance, or if it was a gift from SIL, based on the idea that the money is coming from a joint account that may now be solely the property of SIL. My answer was attempting to cover all the bases. Sorry for any confusion.
I brought it up, because we saw these, technically, as gifts from the SIL, even though they are funded by MIL’s money, and I thought the gift ceiling was $14K before tax implications became an issue.
The sale of her home (really a duplex in an assisted living community) is complete.
It’s not really a gift “ceiling.” $14k is the current annual gift tax exclusion. A gift giver can make a gift in any amount; if the value of the gift is more than $14k (the current federal annual exclusion amount), a tax form will need to be completed and filed to document the excess over the annual exclusion amount. No tax will need to be paid by the gift giver, however, unless the gift giver has already made gifts in excess of annual exclusion amounts that total more than the estate tax exemption ($5.43 million for 2015).
Look at it this way: the federal government wants tax to be paid on that part of an estate that exceeds $5.43 million in value. In order to keep wealthy people from giving away assets during their life in order to die with an estate valued at or less than the exemption amount, the IRS tracks gifts that exceed the annual exclusion amount, and the excess gets deducted from the estate tax exemption amount. Only if your excess gifts (the amount above the annual exclusion amount) exceed the estate tax exemption will gift tax actually be payable.
So this is what I understand- MIL left an estate worth aprox. $300K all in, which consists of cash (including the proceeds of the sale of her duplex), a checking account over which her daughter had signing privileges, but did not “own”, i.e. the assets reverted to the estate upon the MIL’s death, and some stocks and other investments. SIL is the executor, and other than “you guys are going to get some money from mom” you have had no official communication or accounting to show you exactly what you are getting, when the income taxes are getting paid for 2014 (likely paid by now but you don’t know that, correct?) etc. Nor do you know how much in legal and other fees the estate has incurred up to now or will incur in the future in order to settle the estate- all of which will further reduce the amount of distributable assets.
The question on the table is- can you delay receipt of any assets until next year so that you don’t complicate your financial aid status for next year?
I do not believe you are obligated to list a future inheritance- since you don’t know how much you are getting or when you are getting it- and I believe you are in the clear to tell your sister-in-law that you are comfortable waiting until middle of 2016 for your distribution. The value of the stocks may be 50K today, 40K tomorrow, 100K next April. But since you don’t own any of the stock, it is irrelevant to you right now as an asset.
Others may disagree with me- and of course- if any of the facts I have listed are not in fact correct- that my advice is likely off.
I didn’t think you had to list an inheritance at all on the FAFSA or Profile. Am I correct? It’s not income.
The question I thought was if the OP gets the money soon (to pay off the mortgage) what is the impact of getting the inheritance.
But it doesn’t sound like the executor is ready to distribute anyway… money that you don’t have, and don’t know when it’s coming or what it’s worth, or if taxes have been paid or the legal fees settled, should have no impact on FAFSA or profile.
^^^ That would be great to know!
OK, called SIL. Yes, the estate will be about $300K. I didn’t realize MIL had been selling off stocks all along, so the stocks at this point are worth less than $5K. The advice on how all this has been going down has come from a family lawyer who does a lot of work for my BIL. He has been doing MIL’s taxes for 20 years, apparently. He is the one who helped with filing an extension for the 2014 taxes. The assets in the savings account, where the bulk of the money is, is now SIL’s asset. They were joint on the account. It has nothing to do with MIL’s estate at this point. It’s hers to do with as she wants, but we all know that she’s going to gift it to us, per her mom’s wishes.
The will has not gone through probate, and she said there are only a couple of issues that even require probate, such as giving her the ability to sell the stocks in her mom’s name. The plan described in the OP was hers because she didn’t realize the implications to us filling that CSS. Her kids were at FAFSA-only schools.
I now have the name of the lawyer and will call him myself for advice. If you were me, what would you ask him?
Both forms ask about money received that is not “income.” FAFSA asks about money received by the student or paid on the student’s behalf (question 45.j.). Money paid for the student’s benefit from a 529 account not owned by the student or a parent is also reportable, and is certainly not income.
Profile asks for the amount of cash that a parent received and any money paid on behalf of a parent (question PI-230A) that has not otherwise been reported.
Where are the proceeds of the sale of the house sitting now? And how are the 2014 taxes being paid (out of the sister in law’s checking account which used to be Mom’s but are now hers?) Any other creditors (final hospital bills, etc.)?
I’m sure the real estate taxes and any other fees were paid at closing out of the proceeds of the sale. I’ve never seen a closing where that wasn’t done.
OP can take the check now or in 2016. It might change need based aid. The executor can dispose of the estate as she wishes.
Not real estate taxes- the mom’s income tax for 2014. Would have been due in April had she been alive- OP said they’ve filed an extension which suggests they’ve paid a portion of her taxes but potentially not all.
And state estate taxes (some states have a very low threshold, others have no estate tax) would not have been paid out of the house closing- the executor needs to file an estate tax return once the full accounting of date of death valuations have been completed.
Sorry if I wasn’t clear.
The proceeds from the sale are in the account, I believe. I know that a few months ago, the property tried to cut my SIL a check for one amount, but she disputed that amount and was granted an additional $7K. I don’t know the specifics. There are no other creditors. We are luckier than most in that my MIL had no debt despite 24/7 health care in her home at the end (I think that’s why she started selling off stock, to pay for that). We’re all trying to keep this as uncomplicated as possible.
You are very lucky there is no debt. You are also very lucky that all the heirs are on great terms.
You may be trying to keep it as uncomplicated as possible but it doesn’t cost much money to unwind an estate according to the law, and it costs MUCH less money than trying to backtrack. Filing the forms for probate can cost $100 or so. It costs nothing to set up a bank account, properly titled, to handle the proceeds of the sale of a house which is the property of the estate, not the personal property of your sister-in-law. You may need a piece of paper notarized now and then- my bank did it with no charge while I was unwinding an estate.
It’s only uncomplicated until you hit a speed bump- easier and cheaper to have things in writing and to have assets titled appropriately.
I trust my siblings with my life, but would have been very unhappy if the proceeds of the sale of our parents home had gone into the personal checking account belonging to one of them to be distributed to the rest of us. The sibling who was the executor is the most honest and trustworthy person on the planet- but what if she got sued and her assets (our assets) were being claimed?
How hard is it to open a bank account to dump the proceeds from the sale of the house into until the executor can distribute??? It takes ten minutes and is free…
^^^
Very wise words.