How can siblings in poverty avoid inheriting taxes & fees from middle class parents?

Question

My brother and I both have VERY limited incomes. My brother and my husband both receive SSDI disability but not Medicaid. Our aging parents are trying to plan their estate, but can’t afford attorney fees. They do own a house worth approx $400k, some savings, IRA and life insurance. My dad says it is small, but it’s over the Modest Means cap. What is best way to plan so poor inheritors do not receive a big tax/fee burden they cannot pay after parents are gone?

Shadi Ala'i AlaiShaffer · Answer

Spend a little money on an attorney to help draft a plan that will protect you all and save you taxes and fees. By what you shared here is some money to hire an attorney not doing so and you will spend 3X the money or more later.

Mark Schaefer · Answer

SSI is means-tested; SSDI is not. Sell the house after they are gone, invest the cash in an annuity, and enjoy your inheritance.

Frances Headley · Answer

Your parent's can afford a simple estate plan and should be urged to do so.  They can arrange so that your benefits are not impacted.  The size of the estate is too small for estate taxes.  You should consult a probate attorney about the affect an inheritance may have on your financial situation.  You can disclaim an inheritance if it is going to cause you to to lose benefits.

Leonard A. Kaanta · Answer

In Michigan there is no inheritance tax.

Thomas Edward Gates · Answer

You will not have to pay taxes from your inheritance, based upon the information you provided.  Your biggest concern is any impact it may have on your government assistance.  It would be best if you put the money into a special needs Trust.

William H. Von Willer · Answer

Careful estate planning can minimize taxes, but it is something they need  professional help with.   In addition, and depending on the totality of your  circumstances since you are receiving SSDI, they might want to consider a  special needs trust, which needs to be carefully drafted by a profession.

Edwin Fee · Answer

There is no Maryland inheritance tax on assets passing to children, and there is no Maryland estate tax on an estate that is under $1 million.

Richard Keyes · Answer

Please note that Missouri does not have an estate tax and also does not have an inheritance tax.  The Federal estate tax this year is only on estates in excess of $5,120,000.  However, next year if Congress does not act, the Federal estate tax in on estates in excess of $1,000,000.  Your problem is not with the taxes but what your brother may inherit from your parents that causes him to lose his SSDI.  Your parents really need to find the money for a proper estate plan to avoid this consequence.  My suggestion is for your parents to seek an initial no cost, no expenses, consultation with an attorney.  They should not assume that they cannot pay the attorney's fees.  Many attorneys work with clients with payments over time.

John Brennan · Answer

You can disavow the inheritance. Beyond that I cannot counsel you on how to commit welfare or tax fraud.

James Oberholtzer · Answer

They are going to need to hire an attorney.  This is beyond the do it yourself category.

Edward Armstrong · Answer

Generally, inheritances are not taxed as income except in situations where the inheritance was comprised of "income in respect of a decedent."  A typical situation that would fall into this category would be distribution from an IRA or 401(k) plan.  The inheritance could affect any benefit under Medicaid BUT NOT SSDI. Life insurance proceeds are not generally subject to income tax. Depending on what Congress does or doesn't do in the next two months could affect whether or not there would be any federal estate taxes. (Currently there is a $5Million exemption from estate tax and generation skipping transfer taxes.)

Charles Perry · Answer

Given the size of the estate, it does not appear that there will be   any inheritance taxes that either the estate, you, or your brother   will need to pay.  Your parents should be able to get some simple estate planning   documents prepared for a reasonable fee from an attorney in your area.     You should know that the fees for these documents will be   substantially less than the fees incurred to probate the estate  and   a probate will be necessary upon the death of your second parent   unless some estate planning is done.  There are lawyers on LawQA that can prepare help your parent with this   matter, and I am sure that there are estate planning lawyers in your   area.  Your parents  may need to do some shopping, but the investment   in some estate planning will be worthwhile.  I also would be happy to   speak with your parents to see if I can assist them.

James Frederick · Answer

Under your limited facts, it is highly unlikely there would be any significant tax burden, when the estate is settled. There will be some income tax on the IRA, but that can be withheld at the time of distribution. There are also ways of treating the IRA that will minimize taxes, when the time comes. If you are receiving needs based government assistance, there is a chance that you would no longer be eligible, if you receive a significant inheritance. This would not necessarily be a problem, however, as you would no longer need the government assistance.

Don Rosenberg · Answer

Honestly they can't not afford to have an attorney.  They need to explore the idea of a living trust and make sure proper beneficiary designations are in place.  They need to explore the idea of a living trust or a lady bird deed.

Gregory Thomas Taylor · Answer

There are no Kentucky estate taxes if the property passes to children. You would both be completely exempt from Kentucky estate tax,and if the estate is as you described, the estate would be under the federal threshold, so you wouldn't have to pay federal taxes, as well.

Randy Harvey · Answer

The children of deceased parents are not liable for taxes in the estate. The estate is required to pay all the taxes and expenses owed by the estate prior to dispersing any funds or assets.  If there is an insurance policy the beneficiaries will receive the benefit outside the estate.  This advice is based on the limited facts that you have provided, additional facts may change the advice. We are not providing you legal advice, rather we are responding to your set of facts based on general legal principles. You should not rely on this information without consulting an attorney and providing the attorney with a complete set of facts.

Victor Waid · Answer

Assuming your parents' assets are not used for their care, in the latter stages of their life, the value of their assets are within the exemption level which is 3.5 mil on federal estate taxes, and may go back down to 1.5 million after 2012. With the size of your parent's estate, your parents make a big mistake by not seeking an estate planning attorney to prepare a marital Trust, Advance Healthcare Directives, with Durable Powers of Attorney,  and Pour Over Wills that go hand in hand with the Trust. Otherwise, if they do a Will or do not do a Will, , then their estate is headed to the probate court for purpose of distribution; if any tax, federal or state, would be due, then an asset will have to be cashed out to pay the tax bill. You should consult a CPA or accountant re the tax consequences when your parents do pass on. Consider yourself lucky your parents will have an estate to leave, assuming the estate does not have to be used for inhome or convalescent care in the end stage of their lives.

Ben Liu · Answer

You and your brother will receive the estate free of estate taxes. Some planning should be done by your parents to avoid probate which will save inventory fees and attorney fees.

Dara J. Goldsmith · Answer

It sounds like your parents can afford to implement an estate plan, but may choose not to.  If they are truly of limited means they should contact a senior law program in their area for assistance.

Brian Haggerty · Answer

Estate planning is crucial in this kind of case, and it is not that expensive. The estate should pay its own way, so you should not have to come out of pocket to pay expenses. However, careful planning should be done to make sure that the estate can be administered smoothly and the resulting inheritance will benefit you, and not simply wipe out benefits. Failure to do the planning will always cost a lot more than good planning costs. Many good estate planning attorneys will accept payments over time and work efficiently.

Glen Edward Ashman · Answer

Plain and simple - unless your parents want to create a disaster - they MUST see lawyers.   It would surprise me from what you say if they'd spend over $500 to $1000 on estate planning.   And it would avoid a costly and unfixable mess.

Norman Green · Answer

If your parents have a total net worth of less than $1 million, their deaths will not result in any tax liability (though some other expenses may occur).

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How can siblings in poverty avoid inheriting taxes & fees from middle class parents?

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