From: "I'm not saying"
Dear TaxMama,
Have I got a doozie for you.
My Dad passed away 1 year ago and my step-mom has decided to leave me whatever
is left of their earnings.
Fact #1 - they never legally married, so my stepmom of 40 years has a different
name than my Dad/myself. Okay. She plans to leave me a nice bundle; maybe $500k.
So we're sitting here today talking over breakfast and she breaks it to me
that she hasn't paid taxes in 20 years.
I nearly choked on my coffee. When I asked why, she said the IRS didn't help
her make it so she didn't feel it was necessary to let them in on it now. (I'm
still choking just thinking about it.)
She receives Social Security -- approx. 2k / month -- and also owns a house
and car. Then of course there are all the CDs quietly sitting in 4 different
banks.
Help TaxMama! Is my inheritance going to get eaten alive by the IRS?
Oh, and I'm trying to get her to create a Living Trust to avoid probate,
and that has not been well received.
It's frustrating to watch this all happen before my eyes. My one chance at
a next egg and I'm afraid I'm going to lose it.
Thanks in advance for your advice.
I DID look through the FAQs before submitting this one, but didn't find anything
close.
Sincerely,
Despondent Daughter
Dear DD
Oh yes, your situation is a bit different than most. You won't find this
one in the records ...at least not exactly.
First of all, the good news.
Since they were never married, your father and she don't have joint liability.
California is not a common-law state - so they are not considered married
in the eyes of the law, even after living together for 7 years or more.
So, your father's estate can't be tapped for her taxes.
More good news. She's really just scaring you.
If her income has primarily come from Social Security for the last 10 or
20 years, then she probably didn't need to file at all.
Being over 65, her income from interest on the CDs would have had to be
higher than about $7,000 - $9,000 per year before she would have had to file
a tax return.
(Add up the personal exemption,
the single standard deduction and the over 65 additional standard deduction.)
The same numbers apply to your father's filing requirement.
Most likely, if your father also never filed during those 20 years, but
should have, the balance due will be low.
Don't panic.
Here's what I would do:
1) Find out who's name is on the title to the house and the CD's.
Remember, they are not married. If it was your father's house before they
got married, chances are, title is still in his name. Unless there's a will
leaving it to her, you're the next of kin.
2) Get a list of all assets that are in his name. It's likely, if the house
and the CDs are worth more than $1,500,000, that an Estate Tax Return may
need to be filed. Even if not, you'll need to establish the value of the house
at date of Dad's death. Get a Realtor(TM) or paid appraiser to get you a written
value. That will dramatically reduce any tax when you sell the house someday.
3) You might want to get some professional tax help. I know two excellent
Enrolled Agents in your area.
Lucie Sample, who also works full-time for the TurboTax folks developing
their tax software
Blakely Sanford, (yes, that's the guy sends us so many jokes) - He used
to run the a CCH tax processing center - that's the company that most large
CPAs used to use before in-house computers and tax software.
Both have well over 20 years experience and are very good at what they do.
They can help you determine what years need to be filed and what don't.
Remember, though, your 'step-mother' is in control of the assets. If you
want to inherit them without a fight, do your best not to push her too hard.
Most likely, she doesn't want to give up control of the CDs for two reasons
- she might need the money - and she hopes this will keep you close and friendly.
As to the planning and Living Trust, etc. - she hates the system. She probably
won't budge. Instead, just see if she will add your name as either a signator
to the accounts or as heir on them.
Either way, both Lucie and Blake can be pretty diplomatic.
They'll know what to do.
Best Wishes,
Eva Rosenberg, MBA, EA
