Tag Archives: inheritance tax

Can the Executor Give Away Estate Assets?

historic houseDear Liza: My husband is the sole executor (and only child) of his mother’s Will.  There are no other beneficiaries listed in her Will.  The only asset she had was a home which is valued at about $300,000.  Does he need to probate her Will?  As the executor can he sell the home to one of our children for $1.00? Whether or not your husband has to probate the Will depends upon your state’s small estates limit. In most states, an estate that falls below a certain threshold doesn’t have to go through a formal probate. To find out about your state’s small estate limit, click here. But my guess, is yes, a piece of real property that’s worth $300,000 doesn’t fall below that limit in any state that I can think of.

Whether or not your husband can sell the house for a dollar raises a different issue. The short answer is “No.” Your husband, as the executor, has to follow the terms of the Will (as does the probate court). So, at the end of the probate proceeding, the Court will distribute that house to your husband, since you’ve said that he’s the beneficiary under the Will. At that point, if he wants to sell it for 1$ to your kids, he can do so, BUT, the IRS will consider that a gift of the fair market value of the house, minus that one dollar. Essentially, your husband is giving the house to your kids, and pretending that he sold it to them, right? The IRS gets that, they’ve seen it before.

I’d advise your husband to consult with an estate planning attorney. Depending upon the terms of the Will and the time that’s passed since his mother died, he may be able to disclaim the gift and have it pass directly to your children, as a gift from their grandmother directly. A disclaimer is a legal no-thank-you that must be properly executed within nine months of the date of death and before a person has accepted any benefit from that gift. The house would pass to your children only if the Will says that, if your husband died first, it would then pass to his issue. (Not all Wills would say that, so this depends on what it says.)

If he can’t disclaim, he’s absolutely free to make such a gift himself. He’ll have to file a gift tax return by April of the following year, reporting the gift, but he won’t owe any gift tax on the gift because your husband, like all of us, currently has the ability to give up to $5.34 million during life or at death without paying any gift or estate tax.  The gift of $299,999 will use up that much of his available exemption, leaving him with a bit over $5 million more to use.

You also need to find out whether or not your state imposes an inheritance or estate tax. You’ve told me that you live in Pennsylvania, which does impose such a tax. Click here for a general guide to state inheritance and estate taxes, including Pennsylvania.

Death and Taxes: The Basics

Dear Liza: My cousin passed away in 2011, and she had a revocable living trust. My cousins inherited the assets 50/50. The assets were stocks. Do my cousins have to file income tax returns for what they received? Also, am I required to file an income tax return for the trust? Your cousins inherited the stocks at their value on the date your cousin died in 2011. Inheritances are NOT ordinary income under the federal tax code, so they receive those assets free of federal income tax. (We have a federal estate tax; if any tax was due, it would have been on your deceased cousin’s estate, if she owned more than $ 5 million in assets when she died.)  Seven states have an inheritance tax, so they’ll need to check on whether any state inheritance tax is due.  Your two cousins will be responsible for filing income taxes on any dividends they received after inheriting the stocks, and for any capital gains earned when they sell that stock if it has appreciated since they inherited it. You, as Trustee, would be responsible for filing a trust income tax return (Form 1041) if the trust earned more than $600 worth of income between the time your cousin died and the time the trust assets were distributed to the beneficiaries.