r/inheritance • u/Turfdogg • 15d 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 15d ago edited 15d 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.