Quick question for accountaints/tax guru's

[Samuel L. Jackson]

Wifey and I have been through this via her grandfather and aunt...

The insurance company will likely send you a 1099 or some other form to use for tax purposes IF it is to be counted as a taxable entity... You can probably call the company to verify... Most likely, nothing will be owed on it other than the interest it generates once deposited into the bank...

It is a tricky thing when someone dies... and I think they make it tricky hoping you'll mess up in some form...

The best rule of thumb is that if you inherit straight up money (via bank accounts or as a beneficiary of some sort of insurance), you likely won't have to pay anything other than the money you make off of it via interest in the bank... IE. You put it in a shares or checking account, and it accrues interest for the rest of the year... You already pay taxes on interest you get from bank accounts, and this is handled no differently... That said, you could probably shelter it somewhere either as cashing it out (that is a lot of money to just have lying around somewhere) or investing it elsewhere (even though you are likely to be earning interest there too, and as such, will have to pay taxes on that interest)...

If it is real property you inherit (like a house, a car, or other tangible goods) and you sell those items, you have to pay taxes on the amount you sell it for...

In other words, you can inherit the property, but not really the value associated with it...

In my examples...

First, we inherited my Aunt-In-Law's house in Massachusetts... We weren't going to pack up and move there, so we sold it... We made some money on it, but had to pay Uncle Sam a big amount the following year for income taxes (as this was generated income on the sale of inherited property)...

We also got a retirement account and a life insurance policy from her, and neither were taxable other than the interest we earned on it after putting it in the bank...

10 days after AIL died, Grandma-in-law passed away... Wifey got an account GIL had been saving for our wedding (it wasn't too much or anything, and we had to pay tax on the interest it generated) and the rest went to grandpa-in-law...

Grandpa-in-law came to live with us... 4 years later, he passed away... His accounts were split between us and mother-in-law... He had no real property left (he had sold his home in Mass. and paid the income tax on it when we moved him down here), and what we inherited from him we again had to pay income tax on the interest it generated...

If your stepmother was still his spouse (it sounds like it) then everything is legally hers anyways, unless he specifically named someone else in his will or as a beneficiary to any policy...

Again, if it is an insurance payout (a check it sounds like), most likely she will only have to pay taxes on the interest it generates once she puts it in the bank... It sucks to have to pay anything on it, but it is a lot better to pay income taxes on the interest generated from such a large sum than it is the entire sum...

Hope I made some sense of it, and sorry for your loss!

[Samuel L. Jackson]

Also, as far as any sort of "inheritance tax," like someone else mentioned, I think most states have done away with it... Even when it was in effect in NC, you didn't have much to worry about unless you inherited over like a million dollars...