estate 5yr deferral account
Client took the option to move 80k over to an estate 5yr deferral option instead of paying taxes for him and sister due to other taxes from other accounts.
The cost basis is: $63,400 and cash value is no 70k with the downside of the market.
if he withdrawals the money in Jan of 2019 (can’t do this year): The check goes to the estate but the amount is split between him and his sister. he already included this account in the inheritance tax for NJ, which was none.
a. does the estate pay the taxes on this gain of approx. 7k and is the estate at a higher tax rate?
b. does he write out checks to him and his sister and each get a 1099 for the amount and split the tax of the gain?
c. does the gain go to the bottom line of him and sister to pay taxes on the gain?
Thankyou
Doug
Permalink Submitted by Alan - IRA critic on Wed, 2018-12-19 20:45
What was inherited, a NQ annuity?
Permalink Submitted by Douglas Bauerband on Wed, 2018-12-19 21:09
yes it was a NQ annuity
Permalink Submitted by Douglas Bauerband on Thu, 2018-12-20 15:13
it was a NQ account.
Permalink Submitted by Alan - IRA critic on Thu, 2018-12-20 16:13
For a modest amount of gain, there is no sense in keeping the estate open to receive annual distributions over 5 years unless there is some other reason the estate must stay open. For a lump sum distribution, the taxable gain would be passed through to the beneficiaries on a K 1 in 2019, and each beneficiary would then pay tax on their lower individual rate, not the higher estate rate. The only 1099R is issued to the estate by the insurance co., estate executor files a 1041 for the income to the estate and K 1 to pass the distribution through to the beneficiaries.