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  1. #1
    Join Date
    Apr 2009
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    Default Paying Taxes on Inherited Money

    my brother inherited some money which came from some CDs. at the time he inherited the money, he was a minor, so the money was put into a minors trust account at a different bank where the CDs originated from.

    the day he turned 18, he cashed out the minors trust account.

    to this day, he has not paid any taxes on the money.

    should he have paid taxes when he cashed out the account? or is he going to have to pay taxes when he does his taxes this year?

    thanks.

  2. #2
    Join Date
    Mar 2009
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    Key West, FL
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    Default Re: Paying Taxes on Inherited Money

    There has never been inheritance taxes on amounts of under 1 million dollars. There have been changes to the law, raising that amount, though off hand I don't know what it is. Maybe something like 10 million. Republicans wanted to do away with it altogether but not sure of the status of that. In any case, I would guess the inheritance was not over a million.

  3. #3
    Join Date
    Oct 2006
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    Default Re: Paying Taxes on Inherited Money

    Quote Quoting justfold
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    my brother inherited some money which came from some CDs. at the time he inherited the money, he was a minor, so the money was put into a minors trust account at a different bank where the CDs originated from.

    the day he turned 18, he cashed out the minors trust account.

    to this day, he has not paid any taxes on the money.

    should he have paid taxes when he cashed out the account? or is he going to have to pay taxes when he does his taxes this year?

    thanks.
    I don't know how much money is involved, but the only taxable "income" that would have arisen from this is taxable interest income. With interest rates being as low as they have been over the last few years, its possible that your brother would not have earned enough interest, it any given year, to incur an actual tax liability.

  4. #4
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    Jan 2008
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    Default Re: Paying Taxes on Inherited Money

    Concur with LL.

    Unless your brother inherited from the Rockefellers, we're probably not talking enough to trigger the inheritance tax, so any taxes he would owe would be on taxable interest income.

    I just received a partial inheritance myself. The attorney representing my grandmother's estate explained that I will owe some income taxes next year on a very small portion of that, as part of the distribution came from interest income on the trust. It isn't going to be much.
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  5. #5
    Join Date
    Apr 2009
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    Default Re: Paying Taxes on Inherited Money

    Thanks for the input.

    My brother inherited in excess of $50k. I also inherited roughly the same amount, and at the time when I cashed out, I had to have at least 15% taken out for Federal Tax. And then pay State Tax when i filed.

    I was under the impression that since I had to pay taxes, and that his money came from the same accounts as mine. That he also would have to pay roughly the same amount in taxes.

  6. #6
    Join Date
    Sep 2005
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    Default Re: Paying Taxes on Inherited Money

    That makes it sound more like you received a share of a tax-deferred retirement account, such as an IRA or 401K and, as you chose not to roll over the funds into your own retirement account, you had to pay income tax on the amount disbursed to you.

  7. #7
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    Apr 2009
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    Default Re: Paying Taxes on Inherited Money

    Quote Quoting Mr. Knowitall
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    That makes it sound more like you received a share of a tax-deferred retirement account, such as an IRA or 401K and, as you chose not to roll over the funds into your own retirement account, you had to pay income tax on the amount disbursed to you.
    Ok, talked to the bank where the money originated from. The money did indeed come from a tax-deferred retirement account.

    So since there was no taxes taken out when the money was transferred into a minors trust account. And there was also no taxes taken out when my brother cashed out the minors trust account.

    My brother is going to have to pay taxes on the money when he files his taxes this year?

  8. #8
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    Default Re: Paying Taxes on Inherited Money

    Quote Quoting justfold
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    Ok, talked to the bank where the money originated from. The money did indeed come from a tax-deferred retirement account.

    So since there was no taxes taken out when the money was transferred into a minors trust account. And there was also no taxes taken out when my brother cashed out the minors trust account.

    My brother is going to have to pay taxes on the money when he files his taxes this year?
    I would have thought that the taxes would have been dealt with when the minor's trust account was set up, unless the minor's trust account was a retirement account itself (quite possible).

    If that is the case, then your brother will owe taxes on the money, if he took the money out in 2009, then he would have received a 2009 1099R. If he took it out in 2010, he will get one next January. Again, this assumes that the taxes were not dealt with when the trust was opened.

  9. #9
    Join Date
    Apr 2009
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    Default Re: Paying Taxes on Inherited Money

    Quote Quoting llworking
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    I would have thought that the taxes would have been dealt with when the minor's trust account was set up, unless the minor's trust account was a retirement account itself (quite possible).

    If that is the case, then your brother will owe taxes on the money, if he took the money out in 2009, then he would have received a 2009 1099R. If he took it out in 2010, he will get one next January. Again, this assumes that the taxes were not dealt with when the trust was opened.
    To the best of my knowledge, the minors trust account was not a retirement account. But lets say that it was not a retirement account, is there a reason why there were not any taxes taken out where the money originated from?

  10. #10
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    Oct 2006
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    Default Re: Paying Taxes on Inherited Money

    Quote Quoting justfold
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    To the best of my knowledge, the minors trust account was not a retirement account. But lets say that it was not a retirement account, is there a reason why there were not any taxes taken out where the money originated from?
    Its possible that the original account itself was simply rolled into the minor's trust, rather than the money being removed from the account and then deposited in another account.

    In that case, the money would have still been in a retirement account within the minor's trust.

    Who was the individual who set up the minor's trust? They would have more information.

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