Category: Inheritance

Houston Probate Lawyers Answer, “Will My Inheritance Be Taxed?”

One of the most common questions our Houston Probate Lawyers get from people who just inherited assets is whether or not they owe taxes on the money or property they just received. It is an excellent question, but the answer is a bit more complicated than yes or no. If you have just inherited from an estate, the answers below will help guide you in the right direction.

Income Taxes

The IRS requires everyone to claim every source of income when they file a tax return, however the IRS does not consider inheritance to be part of your income, so you likely do not have to claim it on your tax return.

Capital Gains Tax

You have to pay capital gains taxes anytime a gain is achieved. For example, if you buy a house to renovate and resell, you would have to pay capital gains taxes on the money you made above the original purchase price if it is not your homestead.

If you inherit an asset and the value of that asset increases, that asset would be subject to capital gains taxes from the date your inherited the asset, not when it was originally purchased.  This is called a step up in basis.

Death Taxes

There is a federal estate tax that applies to any asset transfer that is valued over $5.49 million (2017). However a spouse can transfer unlimited assets to their spouse without having to pay the federal estate tax. Some states also have an inheritance taxes, but Texas does not.

Hopefully, you now have a better idea about how your estate will be taxed when it is handed down to your heirs. If you anticipate that your estate is structured in a way that will require your heirs to pay substantial taxes, it may be in your best interest to speak to a qualified estate lawyer. There are many legal ways to reduce the tax burden on your estate. To set up a consultation, call the Hegwood Law Group at (281) 218-0880.

How Not to Do It: Spending the Inheritance on Royal Souvenirs and Strippers

For the Scripps family, who were heirs to a media fortune, they simply spent their millions. According to an article on CNBC.com, “The Greed Report: Not a billionaire? You still need an estate plan,” they took luxury cruises around the world and family outings to strip clubs. 11-10-16

Melissa Scripps bought Queen Elizabeth II's coronation chair and Queen Victoria's nightgown. Like his mom, son Michael liked to buy war memorabilia and guns. Oh, and he married a stripper.

When the well ran dry, the family started to fight. Mother and son turned on each other, one family member went to prison and tarnished a name once associated with entrepreneurship and philanthropy. This tragedy provides some lessons for the rest of us.

Everybody needs estate planning in some form or another—it doesn't need to be complex in many situations but everyone needs a plan, even those with social problems, financial problems and marital problems.

A good estate plan will consider all of those problems and keep your assets in the family and away from the government and taxes.

Estate planning doesn’t have to be complex or expensive. Estate planning is sometimes 95% social work and 5% legal, some attorneys say. The legal part they know—it's the social part that takes time. The Scripps family probably should have spent more time on the social part as well: Melissa Scripps' attorney said that at the time she inherited the family fortune, she had never held a real job and only had a high school education.

Maybe some more estate planning might have prevented the Scripps’ century-old legacy from turning into a gigantic family feud.

Reference:  CNBC.com (Sept. 22, 2016) “The Greed Report: Not a billionaire? You still need an estate plan”

Celebrity Estate Panning Leaves a Lot to Be Desired

One would think that big stars like Prince would have a team of high-powered advisors, compared to the average Joe and Jane. But that isn’t so, says CNBC in the recent article “Don’t make these celebrities’ estate-planning blunders.” 11-08-16

Celebrities make the same mistakes. Here are a few:

Mistake #1: No Will. Nearly two-thirds of Americans don’t have a will. This has included the likes of Abraham Lincoln, Prince, Sonny Bono, Jimi Hendrix and Pablo Picasso. Dying without a will can mean numerous potentially disastrous consequences, like your assets not being distributed to those you intended or family in-fighting. The state intestacy laws apply and they are rigid regarding who gets what share of the estate. And without specific instructions from the deceased, an estate may be fought over in court by family members who think they deserve their fair share.

Mistake #2: No Current Will. Signing a will is just the beginning: you need to regularly update your estate planning documents and beneficiaries when your financial and personal situation changes. Look at singer Barry White. He was separated but not divorced from his second wife at the time of his death. As a result, his wife got everything. White’s live-in girlfriend of several years got zero.

Mistake #3: No Tax Plan. Even if you’re not ultra-rich and your wealth is well below the federal estate tax threshold of $5.45 million per person this year, there may be state estate taxes. Poor planning could force your heirs to sell valuable or sentimental items because there are insufficient liquid assets to pay the tax. Joe Robbie’s family sold its stake in the Miami Dolphins and Joe Robbie Stadium to pay estate taxes.

Mistake #4: No Reference to Personal Property. Comedian Robin Williams’s family has battled over his film memorabilia. And Martin Luther King Jr.’s kids fought over his Bible and Nobel medal. People forget about personal property in their estate planning, which can trigger lots of fights over who gets family heirlooms, collectibles and Dad’s Barry Manilow record collection. Be specific with descriptions.

Reference: CNBC (Sept. 17, 2016) “Don’t make these celebrities’ estate-planning blunders”

Librarian’s Estate Plan Includes $4 Million Gift to School

 

A former University of New Hampshire librarian’s $4 million gift to the school has received considerable attention due to the way the school opted to use the funds. This uproar is a reminder that estate planning is important, especially if you’re particular about the way you want your money used. 11-02-16

This is the message in the credit.com article “The Lesson We Can All Learn From the Librarian Who Left a Fortune to His Former Employer.”

Robert Morin, a university librarian for nearly 50 years, gave his entire estate to the school when he died in 2015. He designated that $100,000 go to the library but didn’t say how the remaining money should be spent, according to UNH. The school said it plans to spend $2.5 million of the proceeds on a student career center, and another $1 million on a video scoreboard for the school’s football stadium.

The scoreboard upset some people. They said using 10 times the amount dedicated to the library for a scoreboard goes against Morin’s interests—especially his austere lifestyle—which is the reason he could save such a large sum of money.

Think about the amount of flexibility we have in dictating our wishes when it comes to leaving money to others in our estates. A will or living trust can give instructions to do anything that’s not illegal, so you can put in pretty much anything you want.
Here are a few things to consider when deciding who will receive proceeds from your estate and how much:

Specific Amounts. Use caution when stating specific dollar amounts in your will or trust, especially when coupling charities and family as beneficiaries. An estate can lose value over time, so the $100,000 you want to leave to the Alley Cat Allies can sound terrific when your estate is valued at $1 million. However, if it plummets to $150,000, it will leave little for your family. Instead, use a percentage of the estate instead of a specific dollar amount and add a restriction that the amount is not to exceed a specific dollar amount.

Name Charities as Beneficiaries. Rather than mixing charities and family members in your will, make a charity a beneficiary of a retirement account. The money will then go to the charity tax-free, and, if you want to change which charity receives your donation, you only need to change the beneficiary on your IRA or 401K instead of rewriting your will.

As with most estate-planning issues, it’s smart to speak with a qualified estate planning lawyer instead of trying to do it yourself—especially if you have substantial assets and/or multiple beneficiaries.

Reference: credit.com (Sept. 19, 2016) “The Lesson We Can All Learn From the Librarian Who Left a Fortune to His Former Employer”