My father passed (suicide actually) and left me (his only child) everything. I just got almost $22,000 put in my account from closing his checking and savings. Is that considered income or a gift or… how will that be taxed? I am a very low income (under $12k/yr) small business owner and I already pay a lot in taxes every year and I need to be prepared.
He also left 2 homes on an acre each (1 is being kept/lived in by my cousin until his death, but the property will be in my name so I assume I will be paying the tax on it), and an IRA with NY Life. I don’t have a clue where to start. I am terrified of messing up the taking over of the IRA… there’s about $48k left in it and I would really like to have something like my dad had, where it pays out a little each month for me to live off of so I don’t have to worry so much about an emergency bankrupting me. What do I need to do or say when I contact them(NYLife)? I called the help line and someone is supposed to get back to me. I just feel so lost…and rushed because there wan an issue with the death certificate and I only just now got it! its been months since his death (July 28th) and I assume I am needing to hurry before things become too complicated.
Thanks for any advice you all can give!
Unless his estate is huge, there are no federal taxes due on your inheritance. Depending on your state, there may be.
The value of the homes will have a stepped up basis, so there should be no gains tax if you decided to sell immediately, and if sometime later, it would be that value minus the current value. There are somewhat different rules (exemptions) if you make one of them your primary home.
The estate pays expenses until the assets are distributed, so the estate will pay prorated property taxes up until the homes are retitled in your name, and you will pay after that. So, if it were retitled tomorrow, the estate would pay taxes through mid Octobet, and you would pay them from mid October through the end of the year.
Since it was a parent, not a spouse who uou inherited from, you must drain the IRA in a certain amount of time (unless it was a ROTH?); I think it is 10 years. You could take the distributions, and put them in your own ROTH. I’m not sure if you can avoud income tax by putting them in a traditional IRA.
I think it would be well worth the $ to have an estate attorney (presumably the one who drafted your father’s will) lead you through the process. And also talk with an accountant/investment advisor on how to handle the financial aspects such as the IRA.
Also, most estates take quite a few months, or even a couple of years to settle (and more if there are disputes, or it is a very complicated estate.
I’m sorry about your loss. That in and of itself will be something you’ll have to deal with and adjust to. Allow yourself plenty of time just for that.
Since you’re the only child and only beneficiary, I see no reason for you to rush to settle things. Are you handling the estate by yourself? You can do it, just go methodically, follow instructions, work on it when you can. There are a lot of hoops to jump thru, but don’t get stressed out about it.
Regarding taxes, there are different types: estate tax, estate income tax, and inheritance tax. Check your state for any inheritance taxes. You probably won’t have to worry about estate tax because there’s such a large exemption now. Estate income tax is on any income (example: interest on the checking account that you just closed) that was earned between the day of his death and the closing of the acct. For that, you’d have to fill out Fed form 1041 and the state equivalent, if applicable. It’s likely that the interest earned by the estate will be passed on to you by Form K-1 and you in turn report it on your 1040 and pay ordinary income taxes on it. This makes sense since you’re getting the bank account and all its interest.
For the IRA, you’d have to call NY Life and say your dad had an IRA with them, he died, you’re the only heir, you have death certificates now, and ask them what paperwork they want you to fill out. This is assuming you are the beneficiary on their records. If you’re not, they probably won’t want to talk to you. The rules for inheriting IRAs from a non-spouse recently changed, so you’ll have to check on your options. I suspect you have to drain the account within 10 years from the date of death, but verify this. If it was a Roth IRA, you don’t pay any taxes. If it was a traditional IRA, you will pay ordinary income taxes on everything you withdraw from the inherited IRA. Then you’re free to do whatever with the money.
Regarding the real property, yes, you can start paying real estate taxes on them. How you transfer the property titles from his name to yours depends on your state. When you decide to sell them, your cost basis will be their values on your dad’s date of death, and you will likely pay capital gains taxes, unless perhaps you live in one of them and make it your primary residence.
Come back with more questions if you think of some. Good luck!
That’s right. Only the beneficiary gets the IRA assets. People forget to update the bene designations after divorces, marrianges. And yet those are cast in stone, they supercede the Will. The Will is irrelevant, unless there is NO beneficiary.
The IRS published complicated 10 year rules for withdrawing from inhereited IRAs, I think someone posted them in this Community, but then withdrew them. Ask a CPA.
Just to complicate a complicated situation, On Octobber 7, 2022 the IRS put out this memo that says it will delay enforcement of the new rules regarding distributions from inherited IRAs until early 2023.
I guess the IRS rules are confusing to the IRS.
What state did your father live in?
Are both houses in the same state?
Was there a Will?
Who is named as executor?
Have you opened probate?
Alabama. Both places are in AL. Everything is left to me. There’s a will. The lawyer that drafted it is dead tho… do i need probate? I have no idea?
Contact the county clerk for the county where your father lived and ask them. They will give you good guidance.
Each state has slightly different rules about how estates are handles, but there are some common patterns. FWIW, my experience is with my dad, then mom’s, estates in SC.
To fully deal with titled property–the houses and any vehicles–I think you are going to need to open a probate case, yes. Without that at some point you are going to have some issues proving ownership. For example, when you go to try to sell that property. You wouldn’t want to go to sell the house and find you need to go to probate and that will take 18 months. Also, do either of the properties have mortgages?
My understanding is that all the stuff that passes to you in the WIll isn’t really 100% yours until you file the Will and it is probated. You do have five years to do this, so it’s not a rush in that sense, but as I say if you don’t plan ahead, you may try to do something “quickly” and not be able to. Google “probate court alabama” and the county your father was living in to get the web page/physical address and you probably want to go down there with a copy of the will and death certificate, file the will and speak with them. SC had three levels of probate; simple, informal, and formal. Roughly speaking, ‘simple’ was for probate assets less than $25K, ‘informal’ was for assets over that amount but where the court fwlt there wasn’t going to be a lot of contention about the will, and then the ‘formal’ process was for more complex or disputed wills and estates. Hopefully Alabama has an informal probate process for you.
One thing you (or someone) will need to do in a timely manner is file final income tax returns for your dad by April 15 2023. Report his income up to his date of death, federal and state. Write across the top of the returns his name, deceased on july 28 2022. Then they wont expect any more tax returns from him in the future.
With lisa5678’s comment about taxes, I think this thread has probably covered most items, but there are lists online like this one; https://www.53.com/content/fifth-third/en/financial-insights/personal/retirement-planning/estate-settlement-101.html about how to settle an estate and/or what to do when a loved one dies. They aren’t too complicated, and your case will be even simpler since you are both executor and sole beneficiary.
Do you have a clear picture of your dad’s finances, or was some of that private? For example, my father shared his computer and website passwords list with us before he died. So we knew all the pieces and were able to help mom out. Besides the assets you mention, did he have any debts? … credit card? … medical?
Was he on social security and did he get any other pension? Or was he still working? Social security was probably notified by the funeral home. If there were other pensions you will need to notify them yourself.
Speaking of Social Security, there is a one-time $250 that they pay to next of kin when someone dies.
And if your father was ever in the military, he can be buried nearly cost free in a national cemetary. (The saying is that you pay for everything up to the gates, and once inside, the VA pays for everything else.)
The small one time payment is to surviving spouses or other dependents who would be eligible to receive benefits based on the deceased’s record. From the information provided, I don’t think Rainbeau is a dependent child. Either way, that payment should be automatic if eligible and not something where there is a special claims process.
It is not automatic, and if you do not apply with 2 years, it is forfeit.
It does look like you are correct that the OP is probably not eligible.
Well, it’s both, but you’re correct for this case. It should be automatic if someone is already receiving benefits from the deceased’s record, but one would have to apply if they were not already receiving benefits on that basis. The example–not the case here–would be a spouse receiving the 50% benefit from their partner’s work history. That scenario should be automatic and was for my mom.