Estate includes what?

[artbuc]

What is the name of your state? PA

Elderly mother has a simple will disposing of all property equally to her 5 children. At this point, virtually all of her property has been distributed amicably among all her children. Mother is under hospice care and resting peacefully.

Mother sold her house about 10 years ago netting $250k which was invested with a brokerin a variety of financial instruments. Two (my brother and I) of her children are listed as beneficiaries on this brokerage account.

Question: Is this brokerage account part of mother's estate? Does if have to be part of the will/probate process? My very rudimentary understanding coming from a previous post is that this $250k will go directly to the two beneficiaries who are responsible for distributing it to the other children. I suppose we are not legally bound to distribute it, but of course it is the right thing to do in honor of our mother's wishes. I am hoping we can handle the distribution of this $250k without having to pay any legal expenses>

 

[moburkes]

What is the name of your state? PA

Whatever the deceased person owned at the time of death.

 

[colourfastt]

What is the name of your state? PA

Elderly mother has a simple will disposing of all property equally to her 5 children. At this point, virtually all of her property has been distributed amicably among all her children. Mother is under hospice care and resting peacefully.

Mother sold her house about 10 years ago netting $250k which was invested with a brokerin a variety of financial instruments. Two (my brother and I) of her children are listed as beneficiaries on this brokerage account.

Question: Is this brokerage account part of mother's estate? Does if have to be part of the will/probate process? My very rudimentary understanding coming from a previous post is that this $250k will go directly to the two beneficiaries who are responsible for distributing it to the other children. I suppose we are not legally bound to distribute it, but of course it is the right thing to do in honor of our mother's wishes. I am hoping we can handle the distribution of this $250k without having to pay any legal expenses>

Answer: the brokerage account isn't part of the probate estate and passes instead directly to the beneficiary(ies) listed on the brokerage account. As far as dividing amongst non-beneficiaries becareful, you may possibly run into some unpleasant tax situations doing so.

 

[artbuc]

Thanks Colourfastt. Please tell me more about the potential tax consequences.

According to the IRS, "income" distributed to a benficiary from an "estate or trust" is taxable. "Property" you receive as a "gift, bequest or inheritance" is not included in your income. So, is the brokerage account inherited property or a distribution from an estate?

Assuming the brokerage account is inherited property, I assume my brother and I will owe no taxes. Furthermore, when my brother and I "give" our siblings their share, I assume that that would be a gift to them and therefore not taxable. I am sure I am missing something here. I welcome your help.

 

[moburkes]

Thanks Colourfastt. Please tell me more about the potential tax consequences.

According to the IRS, "income" distributed to a benficiary from an "estate or trust" is taxable. "Property" you receive as a "gift, bequest or inheritance" is not included in your income. So, is the brokerage account inherited property or a distribution from an estate?

Assuming the brokerage account is inherited property, I assume my brother and I will owe no taxes. Furthermore, when my brother and I "give" our siblings their share, I assume that that would be a gift to them and therefore not taxable. I am sure I am missing something here. I welcome your help.

The brokerage account in income distributed to a beneficiary.

Two (my brother and I) of her children are listed as beneficiaries on this brokerage account.

 

[tranquility]

If the brokerage account is an IRA or other untaxed account, you would owe taxes on the amount. While the account is not probated, it is part of the estate in the calculation of estate taxes. If it were simply an investment account, you would not be taxed on it's stepped up value, but would be taxed on any income or capital gain accrued after death.

 

[anteater]

Even if no federal or PA estate taxes are due, don't forget about the PA Inheritance Tax - 4.5% for assets transferred to lineal descendants.

 

[artbuc]

Do I need a lawyer?

On a slightly different topic, I am executor of mother's simple will. We are arranging so all of her assets will flow directly to beneficiaries except for $40,000 cash account which has her estate listed as beneficiary. All of my siblings agree that I will distribute this money to them equally as called for in mother's will.

Do I need to hire a lawyer? Why can't I simply pay mother's funeral expenses out of this $40,000 and distribute the balance to my siblings? Does the will have to be recorded or are there other functions which must be performed by a lawyer?

 

[seniorjudge]

On a slightly different topic, I am executor of mother's simple will. We are arranging so all of her assets will flow directly to beneficiaries except for $40,000 cash account which has her estate listed as beneficiary. All of my siblings agree that I will distribute this money to them equally as called for in mother's will.

Do I need to hire a lawyer? Why can't I simply pay mother's funeral expenses out of this $40,000 and distribute the balance to my siblings? Does the will have to be recorded or are there other functions which must be performed by a lawyer?

Check to see if your state has a small estates procedure. If so, you may want to think about doing it that way.

Where is the cash account? If ma's estate is the beneficiary (and whoever set it up that way didn't know what he was doing), then whoever it is may need a court order to release the dough.

 

[artbuc]

Check to see if your state has a small estates procedure. If so, you may want to think about doing it that way.

Where is the cash account? If ma's estate is the beneficiary (and whoever set it up that way didn't know what he was doing), then whoever it is may need a court order to release the dough.

My brother set-up this account. It has a steep back-end load which is waived if my mother dies before it is liquidated. So, we decided to let that account alone. When we asked if we could change beneficiary from "to mother's estate" to "all five children", the brokerage firm said they weren't willing to do the paperwork, ie were not willing to cut 5 checks instead of one. I could probably talk them into changing beneficiary to me as an individual. I may do this because I could then gift my siblings their share without triggering a Federal Gift Tax process.

 

[artbuc]

Even if no federal or PA estate taxes are due, don't forget about the PA Inheritance Tax - 4.5% for assets transferred to lineal descendants.

Wow, PA gets you coming and going!

PA 40, Line 7 is for total income received as a beneficiary of an estate or trust. How is this income different from income subject to the 4.5% PA Inheritance Tax?

Let's say mother has two $50k life insurance policies. One names her estate as beneficiary and the other names me as beneficiary. Mother's will says everything she has goes to me. So now I have $100k. $50k came directly to me as beneficiary and the other $50k came to me from the will probate process. How much of this $100k is Line 7 income received as beneficiary of an estate and how much of the $100k is subject to the 4.5% Inheritance Tax?

 

[anteater]

My brother set-up this account. It has a steep back-end load which is waived if my mother dies before it is liquidated. So, we decided to let that account alone. When we asked if we could change beneficiary from "to mother's estate" to "all five children", the brokerage firm said they weren't willing to do the paperwork, ie were not willing to cut 5 checks instead of one. I could probably talk them into changing beneficiary to me as an individual. I may do this because I could then gift my siblings their share without triggering a Federal Gift Tax process.

Any broker that would change a beneficiary designation after the owner's death is not a firm that I would do business with. You realize that is fraud, don't you?

PA 40, Line 7 is for total income received as a beneficiary of an estate or trust. How is this income different from income subject to the 4.5% PA Inheritance Tax?

Let's say mother has two $50k life insurance policies. One names her estate as beneficiary and the other names me as beneficiary. Mother's will says everything she has goes to me. So now I have $100k. $50k came directly to me as beneficiary and the other $50k came to me from the will probate process. How much of this $100k is Line 7 income received as beneficiary of an estate and how much of the $100k is subject to the 4.5% Inheritance Tax?

PA 40 is the PA income tax return. Line 7 is where beneficiaries report any income earned by the estate that is distributed to beneficiaries. The PA Inheritance Tax is not levied on income. It is a tax on the transfer of assets from the deceased to the beneficiaries.

Life insurance proceeds are one of the few items that are not subject to PA's inheritance tax. And, unlike the federal estate tax, PA makes no distinctions regarding the beneficiary or who owned the policy. In PA, life insurance proceeds are exempt from the inheritance tax whether the proceeds are payable to named beneficiaries or to the estate.

My point was that the $250K brokerage account you mentioned is subject to the PA Inheritance Tax, even if there are named beneficiaries. You, as the executor (at least once you are appointed by the court as executor), are responsible for preparing and filing that return - along with your mother's final income tax returns and possibly an estate income tax return.

Do I need to hire a lawyer? Why can't I simply pay mother's funeral expenses out of this $40,000 and distribute the balance to my siblings? Does the will have to be recorded or are there other functions which must be performed by a lawyer?

Are you sure that you don't want to retain a lawyer?

 

[sbldutma]

Beneficiary vs heir

If you are listed as the beneficiary, it should not enter into probate court; in Texas anyway. There is no reason to probate something she's already handled up on.

 

[moburkes]

Any "broker" that does that will lose his license and his job. The insurance company will not accept a beneficiary change that is dated after a person's death. How would you expect that to pass under the radar?

 

[artbuc]

Any "broker" that does that will lose his license and his job. The insurance company will not accept a beneficiary change that is dated after a person's death. How would you expect that to pass under the radar?

Mother has not yet passed. Only God knows for sure, but hospice thinks she could pass at any time. That is why I am trying to quickly address some important issues which I should have dealt with long ago. I just couldn't face it and now it may be too late to get things arranged the way they should be.