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Rules regarding cash inheritance?

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  • Rules regarding cash inheritance?

    I just received a large check that was the remainder of some inheritance money from my deceased father. He passed many years ago and had directed that this money go to me. My mother (still living) had been keeping the money in investments. She sold them, paid the capital gains taxes out of the money itself, and wrote me the check. She had no need for the money having remarried and being financially secure. She wanted me to have it while I could use it.

    So... I am worried about how I can use it. Until I understand it more, I simply deposited it into a non-interest bearing checking account.

    I've read that it will not count as income so it shouldn't affect my taxes. Are there any rules or restrictions on what I can do with it? Down payment for home, buy a vehicle, heli-skiing with the Dahles, invest it back in index funds? How do I account for it to the IRS?

    Appreciate any advice so I don't do something stupid.

    Thanks!

    (I picked this part of the forum because it is sort of the other end of estate planning...)


  • #2
    Hmmm, hopefully some of the more legally minded will give you some advice, but presumably your mother had a lawyer help her settle the estate. He or she should be able to answer this question for you. Generally, assuming the estate was below inheritance and estate tax thresholds you owed no tax on the original inheritance. However, you might want to check what your mother used as a basis for capital gains. Investments should have received stepped up basis on date of your father's death, and capital gains calculated from there. Regardless, there are no restrictions on how you spend the money.

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    • #3
      Money is money.
      Was this in your name the entire time?
      Otherwise there is a gift tax form that needs to be filled out if it was in your mother's name and she transferred it to you.

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      • #4
        So your mom gifted you the money or dissolved a trust and wrote you a check for the corpus? If it was a gift, you have no obligations and there are no strings tied to it. If it was in trust, you should have been receiving annual K1's and either you or the trust (or both) were paying taxes on the transactions. Not enough info to advise further.
        Financial planning, investment management and CPA services for medical professionals | 270-247-6087

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        • #5
          “ He passed many years ago and had directed that this money go to me. My mother (still living) had been keeping the money in investments. She sold them, paid the capital gains taxes out of the money itself, and wrote me the check.”

          There is a lack of clarity here. Was the direction in a will or a legal document? Or was it actually in your mother’s name? Who owned the stock and have the capital gains tax been paid correctly?

          If the stocks were in a joint account, mom owned them sold them and paid the tax. Mom is gifting you the proceeds and needs to file the gift tax report, not you.

          If they were in a will, your basis is market value as of the date of death. Mom couldn’t pay capital gains for you. Back tracking and correcting is going to take some work.

          Need better info on wanted the money to go to you.

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          • #6
            Great questions. Thanks. Let me dig in and find out more.

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            • #7
              OK, lots of clarifications here.

              ​​The money was from his life insurance settlement. It was simply his oral intent with my mother that, what she might not need someday should go to their children. When she remarried, she decided to keep that pot of money separate (an understandable emotional scenario). My mother (still living) had been keeping the remaining life insurance money in investments. She sold them, paid the capital gains taxes out of the money itself, and wrote me the check (<7 figures). She had no need for the money having remarried and being financially secure. She wanted me to have it while I could use it.

              So... I am worried about how I can use it. Any stipulations? It is currently deposited into a non-interest bearing checking account.

              I've read that it will not count as income so it shouldn't affect my taxes. Are there any rules or restrictions on what I can do with it? Down payment for home, buy a vehicle, heli-skiing with the Dahles, invest it back in index funds? How do I account for it to the IRS?

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              • #8
                You do nothing. Spend however.
                she files gift tax.

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                • #9
                  You have no limitations on what you can do with the money other than you might consider using it in a way that will honor your father's memory and your mother's love.
                  Financial planning, investment management and CPA services for medical professionals | 270-247-6087

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                  • #10
                    Mother’s Day is May 10, 2020. Might want figure out a way to let her know she is special. Breakfast in bed? Maybe not. The thought is what counts.

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                    • #11
                      Thank you all for your help. Will use wisely.

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