probate tax law

What is the name of your state? maine

Probate law in the State of Maine says that if an estate is less than $100,000.00, no taxes need to be paid. I am having a hard time finding about IRA's that are left to someone other than a spouse. My daughter inherited two of them, one was a Roche IRA, and her attorney told her no taxes were required of her because the estate was not $100,000 yet she is now receiving 1099 forms because she closed out these two IRA's. Is there any info you could give me on this. I know that in either Minnesota or Missouri Probate law these automatically become part of the estate and no tax is required of them. It is really hard to find definitive answers on this.-Becks

becks said:

What is the name of your state? maine

Probate law in the State of Maine says that if an estate is less than $100,000.00, no taxes need to be paid. I am having a hard time finding about IRA's that are left to someone other than a spouse. My daughter inherited two of them, one was a Roche IRA, and her attorney told her no taxes were required of her because the estate was not $100,000 yet she is now receiving 1099 forms because she closed out these two IRA's. Is there any info you could give me on this. I know that in either Minnesota or Missouri Probate law these automatically become part of the estate and no tax is required of them. It is really hard to find definitive answers on this.-Becks

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She would receive 1099s no matter what. The key is what kind of distribution code that they have been given. They should be properly coded regarding the taxability.

If the other IRA was not a Roth, there will be income taxes due. Not inheritance taxes, but income taxes. Anything that would have been taxable to the decedent will be taxable to your daughter.

Your daughter should see a tax professional this year to handle her taxes. Even if the 1099s were not coded properly the professional can assist with getting them properly reported.

becks said:

What is the name of your state? maine

Probate law in the State of Maine says that if an estate is less than $100,000.00, no taxes need to be paid. I am having a hard time finding about IRA's that are left to someone other than a spouse. My daughter inherited two of them, one was a Roche IRA, and her attorney told her no taxes were required of her because the estate was not $100,000 yet she is now receiving 1099 forms because she closed out these two IRA's. Is there any info you could give me on this. I know that in either Minnesota or Missouri Probate law these automatically become part of the estate and no tax is required of them. It is really hard to find definitive answers on this.-Becks

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You need to distinguish between estate tax and income tax. (I think that you meant to say $1 million when it comes to the Maine estate tax. That is what a quick look at Maine's website says.)

While there may not be an estate tax liability because the estate value is less than Maine's exclusion, distributions from inherited IRA's may be subject to income tax, depending upon the type of IRA and the nature of the contributions. And by saying that "she closed out" the IRA's, I take that to mean that she took complete distributions from the IRA's.

If the Roth IRA has been in existence for five years or more, the distribution should not be subject to income tax. If less than 5 years, the portion of the distribution that represents earnings (as opposed to contributions or rollovers) may be subject to income tax.

Assuming that the other one is a traditional IRA, if all the contributions were pre-tax, then the distribution will be subject to income tax. If there had been after-tax contributions to that IRA, only part of the distribution would be taxable.

Your daughter should be looking for some professsional tax help this year.

Something to be aware of if you do not want to be immediately subject to income tax on an inherited traditional or rollover IRA is that is has to remain in the name of the deceased for benefit of (FBO) the benficiary. Then it would just be taxed as distributed (which may be lower tax bracket than large lump sum). So it is wise to look at that "before" cashing out any inherited IRA (probably too late now).

One thing that surprised me when I did income taxes this year is that Illinois does not tax any IRA distributions (or IRA to Roth IRA conversions). But that may be rare in other states.