POD- Indiana Law

[johnlf]

What is the name of your state (only U.S. law)? INDIANA

Anyone know who pays inheritance tax on POD accounts in Indiana? If not specified in the will, does the estate pay it or the person listed as POD on the account pay it? There seems to be confusion about this and I find that no one really knows for sure....including attorneys. This type of account is exempt from probate, so it would seem that taxes should be paid separate from the estate since the reason it is set up as such is to avoid probate and give almost immediate access to funds. If it is taxed to the estate, then that would mean it is tax free to the person on the POD. That could be considered a loophole then to avoid paying taxes as well if the estate pays the tax. Seems that then it could be also considered income to the POD listed person and be taxed again? POD seems to be a very gray area. Can anyone shed some light on this?

 

[Farfalla]

Have you spoken to a tax attorney?

 

[johnlf]

Tax attorney

No, haven't spoken to a tax attorney. I haven't had much luck finding one in my area.

 

[Farfalla]

No, haven't spoken to a tax attorney. I haven't had much luck finding one in my area.

Has the asset been transferred into you name as of yet?

I'd think that the institution that hold the account will be required to collect and send in the taxes. So they might have a clue of how this works. Have you checked with them?

Do you know who pays federal income tax on POD's?

You can always find a few tax attornies somewhere else in Ohio via the internet, and get a free consultation via telephone. After all you just might need one and it's legit speaking to them to find out if you do.

 

[anteater]

I'd think that the institution that hold the account will be required to collect and send in the taxes. So they might have a clue of how this works. Have you checked with them?

Do you know who pays federal income tax on POD's?

The institution is not required to collect the inheritance tax.

Income tax on earnings in a POD account up until the deceased's date of death would be included on the deceased's final return. After the date of death, the beneficiary would be liable for income tax on any earnings. But, income tax does not have anything to do with inheritance tax.

OP -
If the estate pays the tax, it won't be considered income to the beneficiary.

Generally, in states with inheritance taxes, it is considered the estate's responsibility to pay the tax.

I would try contacting the Indiana Department of Revenue.

 

[johnlf]

it hasn't been transferred yet. I am Personal Rep for the estate and my sister is listed as POD on CD's and an interest drawing checking account.

The estate attorney says that because the will doesn't specify who pays taxes, that the estate pays it. However, the bank says that normally they cut a check and send to the county to pay the inheritance tax and cut another check and send to the POD designee. The attorney also claims that he sent the paperwork with the county auditors approval to the bank over a year ago. Bank says not so and also says taxes are still an issue. Sounds to me that the attorney really doesn't know how to handle or just wants to do things the easy way rather than the right way. I'm searching for a tax attorney via internet. Most are quite a distance from home though. I live in SW Michigan.

The FED tax for interest on the accounts is paid by the estate. The FED exempts inheritance tax because of being below the cutoff amount, however there is probably a FED tax for the POD accounts as income when the recipient files personal income taxes, unless POD accounts are exempt from this.

 

[johnlf]

Contacting IN Dept revenue is a good idea, I hadn't thought of that....Thanks

 

[johnlf]

Just a moot thought about revenue for the state on POD accounts. If the estate pays the inheritance tax, the total tax gained for the state is subject to any expense deductions the estate has, and therfore would be less revenue to the state than if the POD were taxed separate from the estate. If the POD account is levied inheritance tax separate from the estate, the total tax revenue gained for the state would be greater because there are no expense deductions. Apparently the politians haven't figured that out yet.

 

[anteater]

On the other hand, with the estate responsible, the state has one point of contact for payment. They don't have to go chasing a half-dozen folks.

Which reminds me that I wanted to ask a question about...

However, the bank says that normally they cut a check and send to the county to pay the inheritance tax and cut another check and send to the POD designee.

I know some states that, by statute, do not allow release of funds or account retitling in a POD or jointly-owned account without certification that estate or inheritance has been paid. And I know that some institutions will not do that even if not required by law. But, I've never heard of an institution that will dip into an account and send off the inheritance tax amount on its own, at least not without some order by a court or the taxing authorities. With the exemptions allowed, tiers, and the different beneficiary classes, it would seem a daunting task that a financial institution would not want to take on.

 

[johnlf]

In this particular county in Indiana, they are very concerned about getting the taxes paid first before anything is disbursed. The bank said they have in the past disbursed taxes and benefits at the same time in order to satisfy this concern. At the time the bank sent the release forms to the county, they said get an attorney to handle this. I went to the tax office with the estate attorney and they threw a fit with the attorney and the lady said to him, these taxes must be paid first before we release it. Obviously, it sounds like it isn't written in stone as to who pays the tax, they just want the tax any way they can get it. At this point I'm also thinking the bank may be concerned as well and perhaps that is why a simple thing has gotten complicated. The way it has gone so far, the county/state and attorney are only concerned with the taxes. They also "steer" you to do things the way they want it done, even though you have the rights to do things differently. They want you to put people to work, spend money in expenses etc so that there is more tax base to tap into. Doing it their way also makes it simple for them and offers more opportunities for them but more difficult for you. The attorney also has pretty much ignored me and my questions, most of the time refusing to answer them and not properly advising me and/or telling me things. This POD, then should have been able to be taken care of a year ago, but he has sat on it until now that the estate is close to closing and now that he knows what the estate worth is. I can clearly see the "opportunities" that suddenly have opened up and they are certainly not in my favor or my sisters favor (POD). The POD tax issue in this county can go either way. POD beneficiary pays tax or estate does. It seems it goes the way that is most beneficial to the county/state and easiest for them. Pretty much a given there. The attorney says he is researching more on this, looking for past cases etc. I'm sure there is a charge for this, hence the opening up of opportunity. Knowledge is power.

 

[johnlf]

OOps... At the time the bank sent the release forms to the county, they said get an attorney to handle this.

"They" above is referred to as the county officials.

 

[anteater]

What if the beneficiary walks in and says, "Hi, I am the POD beneficiary on Account XXXX. Here is the death certificate. Here is my identification. I would simply like to have the account retitled in my name."?

Would the bank go send the beneficiary off through a bunch of hoops?

 

[johnlf]

Did exactly that. the process at the bank was easy, no problem. The problem came when the bank FAXed the release document over to the county tax office. The county didn't want to release it and held it. The bank told us that there shouldn't be a problem and it was a real simple process, which it is except for the fact that the tax office wanted the taxes due first and wanted an attorney to handle it. So it has been a year now, an attorney has the release forms and it still is not released because taxes are not paid yet. If the estate is to pay the taxes, then there should be no problem and it should have been released a year ago. Thus, something is fishy about it because the estate shouldn't have to be closed, and inheritance tax paid before the POD is paid out if it is the estate paying the tax.