estate checking account
client passed away and inheritance taxes paid.
If we put 10k into the estate account and write checks to 10 people for 1k each…will the 10 people have to pay taxes on the 1k each?
does the estate account have to issue 1099’s?
thank you.
Douglas
Permalink Submitted by Alan - IRA critic on Tue, 2016-12-20 17:35
Was this 10k not an estate asset to begin with? What is the purpose of this? Sounds like the funding of gifts, which would complicate estate accounting and result in problems particularly if bills are not being paid by the estate in proper priority. However, it should not make the gifts taxable.
Permalink Submitted by Douglas Bauerband on Tue, 2016-12-20 21:20
the deceased left and IRA to one person to distribute to 10 people. The IRA is now an inherited ira under the client. If they take out 10k as a distribution, pay taxes on it under their name and put in the estate account. then the estate account sends out check to 10 people for 1k each.do the recipiants have to pay tax on the 1k and does the estate have to do 1099″s?
Permalink Submitted by Alan - IRA critic on Tue, 2016-12-20 23:48
This should not involve the estate as the IRA passes outside the estate directly to the beneficiary. If the beneficiary then wants to “equalize” this portion of the inheritance, they need to take a distribution and report it on their return in accord with the 1099R. They would then figure the reduced amount adjusted for taxes and gift it directly to each of the 10 people. These people would not pay taxes on this because the beneficiary would have paid the taxes. This is not perfect because the beneficiary will be a different tax bracket than some of the recipients. If the beneficiary prefers to gift 1,000 each tax free instead of the tax adjusted amount, he would have to either take out more than 10,000 based on his tax bracket so that he would end up with 10,000 after taxes. Either way, what he gifts to the others is not taxable to them. This is the most simplest and direct method, particularly when the amounts are small like and under the beneficiary’s gift exclusion of 14k per recipient. It also does not mess up the estate accounting which may be under court review in many jurisdictions.