My wife had a pension and 401(k) left to me. Do I have to pay estate taxes on these, or only income tax?
You will definitely need to pay income tax on these items. YOU would not need to pay estate tax on these items under current law, because anything inherited by a spouse is subject to an unlimited marital deduction. Upon your death, however, these items would likely be included in YOUR taxable estate. Whether or not there would be an estate tax due would depend on the value of your estate. As of today, the estate tax only applies to estates worth in excess of $5,120,000. If there are no changes, however, the exemption amount is scheduled to decrease to $1,000,000, as of January 1, 2013.
You should definitely consult with an estate planning attorney to determine how best to structure your estate plan, in light of these issues. In particular, you want to make sure that you have General Durable Power of Attorney forms in place for financial and health matters. This will name someone to act for you, in the event that you ever become incapacitated.
*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.
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If you do not need the funds in the 401(k) right away and your are under age 70.5, you can rollover the 401(k) to an IRA in your name and designate your own beneficiaries. You will not have to take distributions and pay any tax until you are 70.5 and your beneficiaries will be able to stretch the remainder of the account over their lifetimes. This will minimize the income taxes and allow for maximum tax-deferred growth.