Tax consequences with inheritance

[Thrif-t]

So I was talking to my older sister last night (57) about estate planning. She and my bil have 3 grown kids, early to late 20's. They don't have a will but need to do that. In the course of the conversation I was telling her she needs to get her beneficiaries set up. They only have their oldest DD as a beneficiary and they told her she needs to split it w/the other two. I said you need to put all 3 down and split it a 1/3 because there will be tax consequences if not. Not that they have a big estate that would trigger an estate tax, but the amount that the elder would split with the other two would be more than you are allowed to gift. My sister said well how will anyone know what she gives them? Well that had me stumped, how would anyone know if she gave her siblings say 60k each? I said I had to come on here and ask the board because I honestly didn't know.

[disneysteve]

My sister said well how will anyone know what she gives them? Well that had me stumped, how would anyone know if she gave her siblings say 60k each? I said I had to come on here and ask the board because I honestly didn't know.

How exactly would she transfer that money? Unless the parents will be leaving a sack of cash or her to split with her siblings, there will be records of any financial transactions that occur. She can't make a 60K withdrawal or write a 60K check with there being no record of it. And they can't deposit 60K in the bank without reporting where it came from. So unless this will be an all cash situation, the authorities will know it has occurred.

That's really not the only reason this is a lousy idea though. More importantly, the parents should be treating the kids equally, not depending on one to handle everything properly and take care of the others. What if something happens and the sole beneficiary decides not to split the money, or not split it evenly? The other siblings won't have any recourse. What if something happens to the beneficiary between the time she gets the money and the time she was going to split it up? Now it's part of her own estate and will go to her heirs, not her siblings.

The will, which they need to get IMMEDIATELY, needs to spell out exactly how their assets are to be distributed upon their death.

[doingitallwrong]

In addition to what Steve said, if any of the money is in an IRA, any money distributed from the account would be taxable to the named beneficiary.

I'll repeat the caution, too, about the named beneficiary deciding she doesn't want to share the money. Of course you don't want to think your kids would ever do that, but I've seen many siblings torn apart because of disagreements about inherited funds.

[snafu]

@Thrif-t, in my view, your older sister is cruel and irresponsible to require a bereft, older DD be totally responsible for her mom's estate. What if she splits 1/3 but a sibling believes special circumstances requires something different? It's critical for parents to have a Will, Advance Care Directive and Revokable Trust.

DS can use online forms and have them reviewed by a legal clerk, signed and witnessed by a Commissioner of Oaths if she can't bring herself to go the lawyer route. The procedure is unemotional and straight forward. It can be non specific using the word 'current' to preface assets, residence, vehicle, insurance, retirement account[s], bank account[s], and personal effects.

[Thrif-t]

Hey I know you all are preaching to the choir here. We are 5 siblings and when my parents died I was the executor so I know what a hassle all that can be and pretty much after my dad died my mom got all that stuff taken care of, transfer on death, beneficiary stuff, but I can't get thru my siblings to get this done for their kids.

She just stumped me when she said if she doesn't set it up to be split a 1/3 how would anyone know if oldest dd gave $ to younger siblings? and I was stumped that's all. All in all you can lead a horse to water but you can't make them drink.

Thanks for your responses.

[disneysteve]

The estate has to file a tax return. Each beneficiary also has to file a tax return. Any income that changes hands is going to be reported in multiple places. Again, that's unless the parents have a sack of cash buried in the backyard and that's what is being left behind.