Tax Liability on POD Account

[MSimler]

My Aunt passed away 9/01, leaving a large CD and a small checking account in her name with me as POA. I have kept her account open to pay residual bills. When her CD matures this month, I was going to deposit it into the checking account and pay her heirs as directed in her will. The CD has me on it as POD. Will I be personally responsible for income or any other taxes on this CD? We did not probate her will (no other assets), and her executors see no need to hire an attorney for such a small estate. Any advice? Thanks!

 

[advisor10]

1-2-2002

DEAR MSIMLER:

Please clarify your situation by explaining how much the CD is worth. Have you checked with the probate court or a New Jersey to find out what the minimum amount is in New Jersey to be considered a small estate?

advisor

 

[MSimler]

The total value is just over $50K, to be widely distributed. I have researched the probate issue and it does not appear necessary in this case, since she had no other assets. I just don't want to get stuck with the income tax from the interest on her bank accounts!

 

[advisor10]

1-4-2002

DEAR MSIMLER:

Excuse me, but $50,000 is not considered a "small estate", no matter what your executors might think. You need to check with a local probate attorney to find out exactly if this item needs to go through probate although I am not familiar with New Jersey law, I'm guessing that it probably does not need to go through probate.

Your situation is somewhat confusing, since you were named as beneficiary on a Payable On Death account, it is highly possible that the ownership passes directly to you (under the concept of joint tenancy) without even having to go through probate. But that means you get to spend the money any way you wish, and I don't understand why you insist on distributing this money to other heirs, unless you just want to do the morally correct thing.

I don't think you would be responsible for any income taxes, but you would need to check with an accountant to find out about state or estate taxes that might be due. The income tax on the interest would be something that the estate is responsible for since that is where the IRS tax statement would go.

But if you are distributing this money according to the terms of the will, it would make much more sense to have it probated so that any estate expenses (such as the taxes, etc.) could be deducted before the distribution is made to the heirs.

 

[NoJustice]

POA for checking account??

I thought a Power of Attorney terminated upon death.. How are you keeping the checking account open????

 

[advisor10]

1-5-2002

DEAR MSIMLER:

Please ignore the advice on my previous posting--I didn't intend to mislead you. What I would really suggest is that you contact a local CPA or tax accountant, or research this item in an income tax book at the library: there is a small possibility that the money you receive might be considered "unearned" income that would need to be reported on one of the 1040 forms or a supporting schedule.

advisor

 

[MSimler]

Thanks for the info. I will contact a local accountant and also one in Philadelphia, where she lived. I realize the CD belongs to me, but she did it that way because she trusted me to follow her wishes and I couldn't possibly withhold it from the rest of my family. I just didn't want to be the one who gets stuck with the bill, so to speak. Thanks again, have a good day!

PS Nomads4fun: The bank is clueless....she had debts, I paid them, and that's that.