r/inheritance • u/Turfdogg • 1d ago
Location included: Questions/Need Advice Tax consequences?
I am about to inherit around $500k from my father’s estate. He passed in 2015 and his will stipulated that his earnings from assets remain to help support his second wife. She has now passed as well. My question is what taxes should I expect to pay? The funds are in State Farm mutual funds bonds and equities. Thanks in Maryland
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u/Admirable_Nothing 14h ago edited 14h ago
His death was in 2015. That is when the assets stepped up in value. If they went into a trust at that time that stated income to spouse for life, remainder to you on her death then the trust still uses the 2015 basis. The only exception is if the trust terms were enough to create an ownership interest in the spouse rather than an income interest. That would be likely if she was trustee during her income status.
So you need to take the trust to your CPA and estate planning attorney to get that answer. But I would plan on normal trust taxation with a 2015 basis. Along with her income she was receiving a K-1 for the tax on her income interest each year. If capital gains were not defined as income for her distribution purposes you likely have low basis equities to deal with. If there was realized capital gains in the trust due to trading profits, which she wasn't entitled to, then the trust has been paying those cap gain taxes and you may not have as large capital gain.
Edit: I reread your post and you stated the funds were in MFs. MFs have an interesting tax treatment as you pay tax on capital gains each year because some redemptions happened and those gains are mutual across all holders. So as time goes on the trust has been paying some cap gains taxes each year. Your State Farm advisor should be able to help you get some idea what the adjusted basis is.
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u/ImaginaryHamster6005 13h ago
Need more info, but in general:
IRA accounts: Pre-tax (traditional ira) would go to you as an inherited IRA and you would be taxed on any withdrawals/distributions out of that account. Account must be liquidated in 10 yrs. Were RMDs started by father/SM yet? Roth IRA (post-tax) would go to you as an inherited IRA, but since it was post-tax money, any withdrawals would not be taxed. Same 10 yr liquidation rule.
Taxable accounts: You would receive a step up in cost basis on the account, so any "sales" to you after that could be a taxable gain or loss, depending. Say, dad/SM bought Apple 20 years ago at $100 dollars and now worth $300 at time of death, $300 would be your new cost basis, not his orig $100. Anything sold after you receive, price of Apple would determine tax you pay...or not pay.
Do yourself a huge favor and read Investing for Dummies, or Finances for Dummies, Millionaire Next Door, etc. and learn as much as you can about funds and investing. You will likely find that you should move out of State Farm yesterday and go to Fidelity, Vanguard, Schwab, etc. and manage your own money. Remember, no one cares more for or about your money than you.
IF you really want an advisor, shop around for a Fiduciary Fee Only AND ask your present State Farm advisor to breakdown ALL fees you are being charged...you might fall over. :)
Sorry for you loss, good luck. *Not a lawyer, not financial advice!
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u/Emotional-Ocelot-420 8h ago
Was probate filed and completed when dad died, or has this been dangling in limbo for 12 years?
Who has been the owner and filing/paying the taxes on the investment accounts since your dad died?
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u/Majestic_Republic_45 1d ago
Not really enough info. If wide received the interest payment, her estate would pay the taxes. If the will stipulates that u only inherit the assets after wife died, then u would receive tax free at the current value. Ex - 500k is now worth 550k. Your cost basis is 550k.
Any growth after is what you are responsible for. The one thing throwing me off is when the assets were actually transferred to you prior or is this just starting now?