I received an e-mail recently from a client who will be inheriting a large sum of money from a relative’s estate. Regarding this estate, I asked what kind of investments would be inherited. Mostly annuities and some IRAs was the reply, by phone.
How much money? About a million dollars was the answer. Knowing traditional IRAs are fully taxable, I asked “How much was the cost basis on the annuities? Cost basis? What’s that, was the reaction. That’s how much your deceased relative paid into the annuity contracts. Oh, I think it was under two hundred fifty thousand dollars. My heart sank and my stomach churned. I’m so sorry, I said. Because, you’re going to have to pay ordinary income taxes on the balance, on nearly seven hundred, fifty thousand dollars and you’re going to be sick when you see the total tax bill. I’m so sorry.
This didn’t need to be; whether it’s a million dollars, a hundred thousand dollars or twenty-five thousand dollars, the relative tried to do the correct thing by increasing the value of their assets while they were alive, but the outcome became a huge tax liability upon their death and it didn’t necessarily have to be. This is just one of the reasons I wrote and published my book “Investments Don’t Hug”. This issue is addressed in Chapter sixteen – “What’s left”.
Buy the book and read the book and for this situation, focus special attention on chapter sixteen and then call my office and let’s try to fix this problem before it shows its ugly head for your loved ones. Are you doing the right planning, leaving money you worked so hard for, to only have a huge chuck of it ending up in the United States treasury?
