(excluding ROTHs) and other qualified plans like pensions and annuities are subject to income tax upon inheritance unlike non-qualified investment accounts (stocks, bonds, gold and silver), real estate, art and other collectables which have their basis stepped up to the date of death value. • IRAs and qualified plans. It’s generally better to make whoever you want a direct beneficiary of these assets rather than making your estate the beneficiary. This creates tax choices to each beneficiary. For example: Son A could choose to take all the money right away and pay the tax; Son B could take the money over 5 years, thereby controlling and lowering his tax bracket on which funds are taken, and Smart Daughter could take her’s in equal payment over her lifetime.
• An IRA or pension can have multiple beneficiary’s and be bifurcated (divided) after death by the beneficiaries.
• IRA and other qualified plans can be rolled into a spouse’s IRA upon death of the owner, but they can not be rolled into any other beneficiary’s IRAs. Other beneficiaries can however roll them into a beneficiary IRA.
• If you own property jointly with your spouse, the cost basis of that property steps up to the FMV (Fair Market Value) upon death of your spouse. This step-up affects the cost basis of your spouse’s half, not yours. For example, Jim & Jane bought their home in 1970 and paid $50,000. Over the years they did $25,000 in Improvements, so their cost basis when Jane died in 2018 was $75,000. Upon Jane’s death, Jim had the house appraised and the appraised value on Jane’s date of death was $700,000. Jim’s new basis is $406,250. This is computed by computing the step-up which is the value of Jane’s half at her date of death $350,000 plus Jim’s half their joint basis of $37,500.
• All assets that are inherited are consider held long term for tax purposes, regardless of how long or short the asset was held by the deceased.
• Life insurance owned by your estate is added to the taxable value of the estate, so take this into account if your estate may be taxable. For 2018 estates over $11,180,000 are taxable. This amount is adjusted for inflation annually.
• Transfers between spouses are unlimited (not subject to the $11,180,000 limit) unless the spouse is not a U.S. Citizen. Special arrangements need to be made when one or both spouses are Not U.S. Citizens.
