Today TaxMama® hears from Barbara in the TaxQuips Forum, with these questions. “My mother has me as beneficiary on an annuity she had. Will that be considered income for me and taxable? Also she left her house in a trust. Are there any tax issues I need to know about?”
Are you saying that your mother just died? Oh, you do have my heartfelt condolences. It’s hard to lose a mother, at any age. Sigh.
The annuity? Yes, the annuity will be taxable. What part of it? The difference the purchase price (your mother probably paid in a lump sum, or a series of payments) and what you get is all profit that has never been taxed. So that will be treated as pension income.
The house in a trust? That’s probably not taxable. But, the real question is – does it get a step-up in basis (increase in tax value) to the fair market value (FMV) on the date of your mother’s death?
Naturally, you’ll have to read the terms of the trust and the nature of the trust to determine if it qualifies. Typically, if the house is in a living trust, the basis does jump to the FMV on the date of death. With other trusts, especially irrevocable trusts, it won’t.
As to other tax issues? Sure, there are lots, depending on what other assets or debts are in the estate. IRS has an entire page listing a variety of publications and forms related to estates, survivors, etc. Look that over to see if there’s anything that relates to you. At the very least, read IRS Publication 559, which is for Survivors, Executors, and Administrators. In fact, you may be ALL of those.
And remember, you can find answers to all kinds of questions about estates and inheritances and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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