Estate planning: Catching up on readers' questions

Image result for estate planning

Q: If an inheritance is not subject to income tax, why would my broker tell me that my family will have to pay income tax on an inheritance?

A: I can think of two possible explanations for the broker's statement. The first is that he or she made a mistake. The broker may have misspoken or simply not understood the question. In either case, mistakes happen.

The second explanation, and the one that I think is most likely, is that the broker is correct but only to a specific asset or account. As you know, Indiana no longer has an inheritance tax and the federal estate tax is generally only assessed on estates that exceed about five and half million dollars. In most cases, income taxes aren't usually a concern. However, the key word in that sentence is "usually."


In fact, there are times when the property that you receive as a result of a death is subject to income tax. However, those types of property are usually tax deferred assets.

If your broker was talking to you about your investments when he made the statement, I bet that some of them have a tax deferred nature. For example, you might own an annuity that has accumulated tax deferred income or the account itself is an IRA.

Remember that if the account has income in it that hasn't been taxed, someone is going to have to pay income tax on the money at some point. For example, if your kids are named beneficiaries of your IRA, they will have to pay income tax on the money that is distributed to them. So the inheritance itself isn't taxed but the tax-deferred income in the inheritance is.


So give your broker the benefit of the doubt and ask him to clarify the tax comment. I think you are going to find that he's likely correct, at least to the asset that he was discussing.

Q: Can you name more than one beneficiary on an account so that everything is split evenly?

A: Yes, you should be able to name more than one beneficiary on an account. Ultimately it will be up to the bank or other asset holder but I don't think that I have ever encountered a bank that wouldn't let you name multiple POD beneficiaries.

If the account is something other than a bank account, you may need to make sure that you complete the TOD beneficiary designation correctly. Some investment accounts TOD designation forms ask you to fill in the percentage each beneficiary is to receive. If that is the case, make sure that you complete the form correctly and ask for help if you don't understand it.


Share This Posting
Google Plus
Focused On Client Service & Personal Relationships
Contact Us
Copyright © Pellittiere & Jonsson PLLC 2018 - All rights reserved
Web Design & SEO by Scriptable Solutions.