inheritance tax question

[sdh1960]

My Step Mother passed away recently.  Her will stipulates how her assets are to be distributed to the heirs.  All her assets have been liquidated and the monies were deposited into her checking account.  Her Checking account had a Payable up on death beneficiary, her biological son.  All the money is legally going to him tax free as it is an inheritance below the taxable amount.  He wants to honor the will and distribute the monies to the named heirs.  The question is, if he does that, would the  distributions to the heirs be considered inheritance or a gift since the money passed through him rather than coming directly from the estate?  The amount would be greater than the $15,000 annual gift allowance.

[Anonymous_ · Accepted solution]

POD accounts vest immediately upon the passing of the decedent. The account passes outside the estate and not subject to any provisions of a valid will.

The distributions would be gifts and, if greater than $16,000 (in 2022 to any one individual in any one tax year), would require a gift tax return to be filed.

[SDun12]

If the assets were liquidated after her death and then deposited in the POD account, those assets weren't handled properly (unless they were also POD).  At this point, it is best to consult with an attorney as to the best way to unwind the deposit of cash after death, if that's what happened. 

The son was entitled to the assets that were in the account on the date of death. Other assets, unless they were titled the same, were subject to the terms of the will and the proceeds of their sale should have been deposited in an estate account, not the POD account, for distribution per the will.  (Again, assuming those assets were not also held in a POD account.) 

[rlstrommen]

The $16,000 is the Safe Harbor, don't have to track it amount.  You don't have to pay taxes on gifting more than that in a year, you just have to keep track of it until you reach the actual "free" gift limit of $11.58 million lifetime.

https://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/#:~:text=Gift...).

The person gifting files the gift tax return, if necessary, and pays any tax.

If someone gives you more than the annual gift tax exclusion amount ($15,000 in 2020), the giver must file a gift tax return. That still doesn’t mean they owe gift tax.

For example, say someone gives you $20,000 in one year, and you and the giver are both single. The giver must file a gift tax return, showing an excess gift of $5,000 ($20,000 – $15,000 exclusion = $5,000).

Each year, the amount a person gives other people over the annual exclusion accumulates until it reaches the lifetime gift tax exclusion amount. This lifetime exemption means one will not have to pay gift tax on further gifts.

As of 2020, a taxpayer does not pay gift tax until they have given away over $11.58 million in their lifetime ($5.49 million in 2017).

[Anonymous_]

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@SDun12 wrote:

If the assets were liquidated after her death and then deposited in the POD account, those assets weren't handled properly (unless they were also POD). 

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The above-quoted sentence is absolutely true and accurate; proceeds deposited in the POD account were not handled properly and need to be unwound.

Actually, the assets that were liquidated (which were most likely covered by the will) were part of her estate. As @SDun12 indicated, you should consult with a local estates and trusts attorney at this point.