When children receive money from sale of parent's home, life insurance policies, or annuities, are they subject to federal or state income taxes or any kind of gift tax?
Estate Planning Attorney
Generally, the answer is no. Please note though, there are numerous exceptions to the general rule, and you should get with a CPA and/or estate administration attorney to discuss the specifics. There are typically no income tax problems with insurances, but any type of retirement account (including IRA annuities) will have special rules which you must follow. As for the house, if the adjusted basis is at or above the sale price, there are no tax implications - if the house sold for more than the adjusted basis (including the Sec. 1022 basis adjustment), then you should get with your CPA to discuss, though IRC 121(d)(11) generally permits "tacking" of the holding period - but again, there are details that could potentially disqualify you from using this rule, so I encourage you to get with your CPA/attorney to discuss these issues.
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DISCLAIMER: THE INFORMATION PRESENTED HERE IS GENERAL IN NATURE AND IS NOT INTENDED, NOR SHOULD IT BE CONSTRUED, AS LEGAL ADVICE. THIS POSTING DOES NOT CREATE ANY ATTORNEY-CLIENT RELATIONSHIP BETWEEN US. FOR SPECIFIC ADVICE ABOUT YOUR PARTICULAR SITUATION, CONSULT A QUALIFIED ATTORNEY.
Elder Law Attorney
Each item in your question could have a separate answer. The details of when an asset is received and how it is received could affect the way it is taxed, so you should get a qualified CPA or tax lawyer into the picture this year. For example, on a death in 2010, there could be capital gains taxes on the sale of the home, and how the home was inherited determines whether you owe those taxes.
There shouldn't be a gift tax, but, if the total estate reaches $1,000,000, there could be a Massachusetts estate tax that is due 9 months after the parent's death.
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The beneficiary would not pay the gift tax, the gift giver would be liable for that tax, whether it be a living person or a transfer from an estate. Some annuities, however, are partially taxable. You should consult with a CPA before filing your tax returns for the periods in question.
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.
Estate Planning Attorney
Generally, no. However, there may be a state estate tax due in MA on estates valued over $1,000,000. There is no Federal Estate tax for those dying in 2010. Under current law, starting in 2011, there will be Federal Estate tax for estates valued over $1,000,000. (If your parent died in 2009, there would be no Federal Estate tax due unless their estate was worth more than $3,500,000). Estate tax can be minimized and sometimes avoided by consulting a qualified estate planning attorney.
Lastly, keep in mind that if your parents held an IRA or 401(k) and you were the beneficiary, you may have to withdraw that money in a certain number of years and pay income taxes on it (unless it was a Roth IRA). There are ways to only take minimal distributions on inherited IRAs, however they need to be set up by the account holder before they die, ideally. If your parent is already deceased, you may only have 5 years to withdraw the whole inherited IRA account, and you may pay regular income taxes on the withdrawals unless it is a Roth IRA.
You should consult a CPA or estate attorney.
*For informational purposes only. Not legal advice.