What taxes are due when someone dies?
What taxes are due when someone dies?
Attorney Tom Olsen: Don, you're on News 96.5, go ahead.
Don: Hi Tom, thanks for taking my call.
Attorney Tom Olsen: Sure.
Don: I have a question about avoiding taxes on inheritance. My father is in his 90s-- I'm sorry?
Attorney Tom Olsen: Is he a resident of Florida?
Don: He is not.
Attorney Tom Olsen: Okay, go ahead.
Don: Once he eventually passes and his estate is split between myself and my two other siblings, is there a way to avoid inheritance tax by-- ?
Attorney Tom Olsen: What state does he live in, Don?
Don: He lives in North Carolina.
Attorney Tom Olsen: Okay, so Don, let's talk about something first. The most common tax that is due when when somebody passes away is on a traditional IRA. It's not an estate or inheritance or death tax, it's a flat out income tax because your parents never paid income taxes on their traditional IRA, when they pass away and you cash it out, you will pay income taxes on that money because they never paid income taxes on it. Now, Don, I can only talk to you about estate and death and inheritance taxes. Here in the state of Florida, your dad would be allowed to pass up to $11 million free of death taxes. I don't know what the estate taxes are in North Carolina, Don, but that is a state that will be controlling as to if any death taxes, estate taxes, inheritance taxes are due when your dad passes away. Chrissy, maybe you can Google that for us real quick and find an answer, but Don, does that make sense to you?
Don: It does make sense. I have a question about the IRA funds.
Attorney Tom Olsen: All right.
Don: Can his IRA funds be transferred into my IRA to avoid the tax?
Attorney Tom Olsen: When your parent passes away, you can roll that over into your own beneficiary IRA and they just changed the tax laws and I know this because of Clark Howard, the consumer warrior, that you now have the ability to withdraw that money over the next 10 years and pay income taxes on that IRA money over the next 10 years. It used to be longer, but they've shortened it to 10 years.
Don: I got you.
Attorney Tom Olsen: Don, yes, you will have to pay taxes on it
Don: I'm sorry, go ahead.
Attorney Tom Olsen: You will have to pay taxes on it and the year that you withdraw it, you can now withdraw it over a period of up to 10 years.
Don: That's great. Better to spread it out than to pay if in one lump sum, I suppose.
Attorney Tom Olsen: The advantage of that is, if you're in a high income right now, then your tax on that IRA money is going to be greater. 10 years from now you may be in a lower income position and your tax on it would be less. Chrissy, did you find out the answer on estate taxes in North Carolina?
Attorney Chris Merrill: Yes, the answer is that North Carolina follows the way that Florida does and so there would not be a state inheritance death tax unless somebody is over the 22 million.
Attorney Tom Olsen: Well, for a single person, 11 million.
Attorney Chris Merrill: Yes, I'm sorry, yes, exactly.