Bahamas Inheritance

Today TaxMama hears from Joe in the TaxQuips Forum, with this odd tale. “My cousin’s wife whose [missing word] was born in Canada and is also a U.S. citizen will be receiving about $150,000 inheritance from her father’s estate. My cousin and his wife live in the US. Her parents are Canadian citizens. Her father, who was living in the Bahamas the past few years, passed away in 200. He was living in the Bahamas at the time of his death. My cousin has no idea if there are Canadian or Bahamian taxes paid from the estate. My cousin has been trying to find answers to his questions which are: What, if any, US Federal and/or state taxes are there on this inheritance? Her mom, who is still living, will receive the the entire estate except for the $150,000 that he provided as a bequest to his daughter. They sought help through a high-priced accountant recommended by a local accounting organization, but he provided little to no help – and the accountant’s fee was nearly $1000. Can you provide some tax guidance on this issue?”

Hi Joe,

 I guess I don’t understand the problem, or why it cost $1,000 NOT to get an answer? The US inheritance issues are pretty straightforward.

1) There are no US (federal) taxes on an inheritance.

2) To bring in that much money in one year, your cousin’s wife will have to fill out a Form 3520 to report the source of the funds – and to prove it was not taxable.

 3) As Doris pointed out, some states may have inheritance taxes.  The easiest way to find out, if she does not have her own tax professional in her state? Call up the state’s tax authority and ask them. Again – free.

 4) Was the word you are missing in the first phrase above “father”?   “her Father was a born in Canada and is a US citizen”?

If that’s the case, his ESTATE may face US taxes. In 2009 there was still a US estate tax in place.  If her mother is not a US citizen, the total tax-free estate might be limited to $60,000. If Mother is a US citizen, the exclusion is $3,500,000 – and there are special provisions for spouses.  But if the estate is at that level, you do need a US estate tax attorney involved.

 5) As to the Bahamas and Canada…I doubt there are taxes for the heir. Rather, her father’s estate may face taxes, or in Canada, capital gains taxes due upon death. Her mother will have to sort that out with her attorney.

 If the accounting firm didn’t give her enough help to get this far – find out just what they did do for the money. Perhaps they did provide some useful assistance?  If not, request a refund. No on should have to pay when all someone does is bill for wasted time.

 And remember, you can find answers to all kinds of questions about inheritance taxes and other tax issues, free. Where? Where else? At www.TaxMama.com.

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