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Posted by kastnna on February 1, 2008, 10:25 am
There are a myriad of problems here that we will address in due time.
However, your family needs to understand that TAXES ARE NOT BAD! If
you were given a dollar and $0.99 went to taxes, you are still richer
by $0.01. Richer is usually better! Efficiently managing your taxes is
definitely a good thing, but it sounds as if your mother "cut off her
nose to spite her face". I can't see how this is beneficial. In
addition, if not done properly, "giving" the inheritance to her
children can lead to even more taxation (the exact opposite of what
she wants to do).
Lecturing aside, to answer your questions we need more info. Do you
work? How much do you earn? How much did your mother give you exactly?
What is your debt situation? What are your short-term spending plans
(houses, cars, spouses, etc)? Does your current income, if existant,
cover your current spending needs? Do you have any dependents? How old
are you and when do you plan on retiring? I'm sure there are a dozen
more that I haven't thought of off-hand.
Your questions are pertinent, but very broad. The result is that there
is a multitude of possible answers. Please provide a more complete
picture so that we can assist you. And unless its too late, DON"T DO
ANYTHING UNTIL YOU HAVE A BETTER UNDERSTANDING OF THE SITUATION.
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Posted by dapperdobbs on February 1, 2008, 11:33 am
Photoguy
There has been a lot of literature accumulated on this subject over
many many years, and it is what keeps estate tax attorneys in
business. I suggest: spend time searching for a good attorney.
Tax laws vary widely by State. Federal law allows many alternatives.
Estate planning requires accounting - e.g. advice you get here will be
purely generic, and an attoreny can do a better job of orienting you
to your family's situation under State and Federal laws.
As far as your father's estate goes, that is (almost surely)
unchangeable, unless you find accountng errors or other mistakes in
interpretation of his Will, in which case you may be able to file an
ammended return to correct those. But your mother's estate can be
designed. You might expect thousands of dollars in fees, but may get
back more than that in tax savings.
As a matter of general principle, there is no way to legally evade
taxes. You can, however, by careful planning, avoid mistakes that
result in a higher tax bill.
As has been covered in this forum previously, there are (generally)
three things you want to do:
1) Determine your mother's needs and wants going into the future
2) Make accurate estimates of her income, and determine her asset
allocation to provide for her
3) Have her Will and estate plan drawn up exactly, correctly, by a
well-selected attorney.
No offense, but you sound like you are adjusting to a new situation
and are perhaps a bit in shock, getting over your father's death, and
looking at a tax bill higher than you are used to paying. Proceed
calmly, deliberately, and make sure you get full and cooperative
participation amongst all parties involved.
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Posted by joetaxpayer on February 1, 2008, 11:53 am
dapperdobbs wrote:
> Photoguy
> As far as your father's estate goes, that is (almost surely)
> unchangeable, unless you find accountng errors or other mistakes in
> interpretation of his Will, in which case you may be able to file an
> ammended return to correct those.
It depends what 'recently' means. A beneficiary may disclaim their
inheritance and pass it on to the next in line. I don't know the time
limits involved, but this is worth researching.
JOE
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Posted by Sandra Loosemore on February 1, 2008, 12:29 pm
> Your questions are pertinent, but very broad. The result is that there
> is a multitude of possible answers. Please provide a more complete
> picture so that we can assist you. And unless its too late, DON"T DO
> ANYTHING UNTIL YOU HAVE A BETTER UNDERSTANDING OF THE SITUATION.
That's my advice, too -- park the money in a nice safe money market or
savings account while you do some research and figure out where you want
to go from here. Only thing I'd suggest doing right away is paying off
any consumer debt (credit cards, car loans, etc) you might have.
Some other ideas to think about:
No, you can't dump a lump sum like that into a 401K or IRA, but you
can max out your current contributions so that you can tax-shelter as
much of your assets as possible. If you have an old 401K or
traditional IRA you could do a Roth conversion on, that will also let
you move more money into tax-sheltered accounts (since Roth accounts
are "denser" than pre-tax retirement accounts).
You might consider paying off your mortgage, although you'll get mixed
advice about that.
You might want to consider increasing your charitable donations. Not
only does that cut down the tax bill, but it allows you to feel good
about using part of your unexpected bonus to do something meaningful.
You can reduce taxes by paying attention to holding the most
tax-efficient investments in your taxable account (muni bonds,
individual stocks, ETFs, index funds, tax-managed funds), and the
least tax-efficient in your retirement accounts (regular bonds, REITs,
funds that do lots of active trading).
-Sandra the cynic
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Posted by kastnna on February 1, 2008, 1:42 pm
Let me further emphasize my point. Don't do ANYTHING. No money market,
no investments, no gifts, no nothing!
As I and others have said, even the act of shifting the money from
your mother to you could have severe tax consequences. It is an
extremely bitter pill to swallow when you discover that your feverish
attempts to avoid taxation have actually increased your tax liability.
IIRC, the time limit for disclaiming an inheritance is nine months
from date of death. In addition, there are certain steps necessary to
make a qualified disclaimer. If time allows, encourage your mother to
do nothing without first seeking the help of a qualified professional.
(Note: professional assistance will not be cheap, but if done properly
it will pay for itself ten-fold)
If the money does end up in your hands (or has already) then I would
follow Sandra's advice and park the money in money market until you
have a better understanding. That's where we can probably provide the
most help.
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