How much is included in my dad's taxable estate?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

How much is included in my dad's taxable estate?

Postby StormShadow » Fri Dec 21, 2012 1:51 am

Hi guys. A few months ago, my father passed away and my mother is in the process of trying to figure out how much estate tax is owed. She has a CPA and an estate tax attorney, but the two of them don't seem to agree what constitutes his estate that has to be paid for by taxes.

My father had a pre-tax 403(b) and tIRA worth about $1.2 million.
Two houses which were jointly owned by both parents, first house worth ~$1 mill (all paid), second house worth $1.2 mill ($600k equity, remaining $600k mortgage ~4% interest). Second house she is planning to sell soon.

She lives in MD, which has a 16% estate tax with a $1 mill exemption. (She is well below the federal exemption of $5.12 mill.)

Questions:
1) If the retirement funds are rolled over into my mothers IRA, would that still be considered part of his estate that needs to be paid tax on for 2012?
2) Are there any special exemptions for spouses that take over the estate? Right now, she will be taking over everything.
3) Since she is a co-owner of the two houses, is only 50% of each house considered part of my father's taxable estate?
4) Does it make any difference if the first $1 mill house was listed under a trust? The trust is in my fathers name and my mother is the sole trustee.
5) Most important, how much would the expected estate tax be for 2012?

Thanks!
StormShadow
 
Posts: 237
Joined: 9 Feb 2012

Re: How much is included in my dad's taxable estate?

Postby dickenjb » Fri Dec 21, 2012 9:16 am

If MD is at all like PA, there is a form to be filled out to calculate estate tax due. (Actually in PA is an inheritance tax, not an estate tax).

The CPA should be allowed to fill out the form(s).

Easy Peasy.
Philly Chapter Coordinator
dickenjb
 
Posts: 2268
Joined: 5 Jan 2010
Location: Philadelphia PA

Re: How much is included in my dad's taxable estate?

Postby Bob's not my name » Fri Dec 21, 2012 9:23 am

StormShadow, you don't provide anywhere near enough information to get useful comments, and you are asking questions that are peculiar to MD law, so you are unlikely to get useful comments even if you elaborate. You don't even say what the attorney and the CPA disagree on. I don't think this forum will be able to help more than what you can Google up, e.g., http://www.adelbergrudow.com/docs/EstTax2009.pdf
Bob's not my name
 
Posts: 6559
Joined: 15 Nov 2009

Re: How much is included in my dad's taxable estate?

Postby sscritic » Fri Dec 21, 2012 9:53 am

The Maryland estate tax gives full credit to the marital deduction.

Start at federal Schedule M.
Carry that to Part 5 line 21 which flows to line 24.
Carry that to line 2 of Part 2, Tax Computation.
Tentative total allowable deductions

Now go to the Maryland return:
line 4: Federal total allowable deductions (from line 2, federal Form 706)
This flows to total deductions on line 6, which then is subtracted from the total augmented estate (line 3) to give you the estate tax base on line 7.
Maryland estate tax base (subtract line 6 from line 3). Do not enter less than zero

You learn a lot by reading instructions and trying to fill out the form yourself.

P.S. Maryland also has an inheritance tax, but it does not apply to the usual family members.
http://individuals.marylandtaxes.com/es ... nherit.asp
sscritic
 
Posts: 19554
Joined: 6 Sep 2007

Re: How much is included in my dad's taxable estate?

Postby MathWizard » Fri Dec 21, 2012 10:53 pm

Do the CPA and estate attorney differ by much? I can see small differences, but big differences would
concern me.

Sorry to be cynical, but is in the financial interest of one the two that the estate be as large as possible?
Is it that one that shows the estate to be much greater?

Reason for the comment:
---
The attorney working on my wife's granfather's estate included $100K of CD's which had payable on death beneficiaries
as part of the estate. The total estate was about $600K, so no estate taxes were due, but the attorney charged 6% of the
estate for his advice and for filing and submitting the forms. Thus, his including the $100K of CDs netted him $6K. He certainly
had a vested interest in including the CDs, so I did not believe that he should have been the one making that determination.
MathWizard
 
Posts: 1166
Joined: 26 Jul 2011

Re: How much is included in my dad's taxable estate?

Postby BIGal » Fri Dec 21, 2012 11:58 pm

My experience is to get everything in writing as it pertains to fees, up front. We experienced an attorney changing his verbal fee agreement when all was said and done
BIGal
 
Posts: 12
Joined: 26 Oct 2012

Re: How much is included in my dad's taxable estate?

Postby sscritic » Sat Dec 22, 2012 12:14 am

MathWizard wrote: The attorney working on my wife's granfather's estate included $100K of CD's which had payable on death beneficiaries
as part of the estate. The total estate was about $600K, so no estate taxes were due, but the attorney charged 6% of the
estate for his advice and for filing and submitting the forms. Thus, his including the $100K of CDs netted him $6K. He certainly
had a vested interest in including the CDs, so I did not believe that he should have been the one making that determination.

The IRS determines what's in the estate. Do you really think that if you died with $6 million in CDs POD and nothing else that you have an estate of zero?

Whether you should have an attorney who charges a percentage of the gross estate is another matter.
sscritic
 
Posts: 19554
Joined: 6 Sep 2007

Re: How much is included in my dad's taxable estate?

Postby bsteiner » Tue Dec 25, 2012 12:05 pm

If the attorney needs input from the accountant as to what's included in the estate, you should reconsider your choice of attorney. Most estate tax returns are done by law firms, and law firms with trusts and estates practices do them on a regular basis.

The Federal estate tax exempt amount is $5,120,000. The Maryland estate tax exempt amount is $1 million. There is a marital deduction for assets passing to the spouse. However, assets passing to the spouse will be included in the spouse's estate. Most married persons create a credit shelter trust in their Will, so that the exempt amount will be available if the spouse ever needs it, but will not be included in the spouse's estate.

In a state like Maryland where the Federal exempt amount is higher than the state exempt amount, you have to decide whether to shelter the entire Federal exempt amount (or as much of it as you can), at the cost of paying some state estate tax, or whether to only shelter the state exempt amount. There are some variations among the states that have such estate taxes. However, a discussion of that is beyond the scope of this forum.

The executors can elect portability. If they elect portability, the unused exempt amount will be added to the spouse's exempt amount. In this case, if $1 million passes to a credit shelter trust (this seemed likely from the facts presented, but it wasn't clear), the remaining $4,120,000 exempt amount (assuming no other assets passed to anyone other than the spouse) will be added to the spouse's exempt amount. Portabiity is scheduled to expire at the end of this year (in which case the ported exempt amount will vanish). However, the Administration has proposed making it permanent, and no one has expressed any opposition to doing so. Note that portability doesn't apply for state estate tax purposes, nor for generation-skipping transfer tax purposes.

The above illustrates how planning for smaller (under twice the Federal exempt amount) estates can sometimes be more difficult than planning for larger estates.

In general, in the case of assets owned jointly by a husband and wife, one-half is included in the estate of the first spouse to die for estate tax purposes (even though it's not a probate asset), and since it passes to the spouse, it qualifies for the marital deduction. There's also a basis step-up for that one-half interest. However, in some cases, if the property was acquired before 1977, the entire value of the property may be included in the estate for estate tax purposes (in which case the entire value will get a basis step-up and will qualify for the marital deduction).

The retirement benefits are also included in the estate for estate tax purposes. However, if they pass to the spouse, they'll qualify for the marital deduction. The spouse can also roll them over into her own IRA, and (if appropriate) convert to a Roth.

In response to mathwizard: an asset payable to a beneficiary is included in the estate for estate tax purposes, even though it's not a probate asset. Most lawyers handle estates on a time basis rather than on a percentage basis. However, on the infrequent occasion where (at the client's request) we take one on a percentage basis, we do it as a percentage of the gross estate for estate tax purposes rather than a percentage of the probate assets. There's often more work dealing with retirement benefits (setting up inherited IRAs, advising as to required distributions, advising as to the income tax deduction for the estate tax) than on other assets. The fees on most estates would be far less than 6%, but they're likely to be a larger percentage on a smaller estate than on a larger estate, though sometimes a smaller estate can be complicated and a larger estate uncomplicated. We might not take a $600,000 estate unless we had some other relationship with the client or the referral source.

Naming a beneficiary for assets other than retirement benefits (where you need to name a beneficiary to get the stretchout) and life insurance (to protect the proceeds from creditors) is usually not a good idea, though for $100,000 it's not a big deal. It's not a major concern for small amounts, but we've seen cases where financial advisors were the driving force in having beneficiaries named for large accounts, and it wreaked havoc on the estate plan.
bsteiner
 
Posts: 678
Joined: 20 Oct 2012
Location: NYC


Return to Personal Finance (Not Investing)

Who is online

Users browsing this forum: 12thman, cfs, Crimsontide, Desert, Epsilon Delta, hiddensee, jostoney, papito23, scubacat, texas409, thewizzer, tuningfork, vrex, WhyNotUs, Yahoo [Bot], zzcooper123 and 61 guests