VanNess & VanNess, P.A.
352-436-4333

Implications of inherited stocks

Florida does not tax income. That doesn't mean the state doesn't seek to collect revenues when and where it can. Among the chances it looks for are occasions when a loved one dies and has bequeathed a transfer of assets.

Typically, if the material in question is in the form of real estate, the transfer to a spouse or child can occur without any state or federal tax against the property value increase realized during the decedent's lifetime. However, in a situation where the asset is in the form of stock, a lack of advance planning can result in your loved one having to pay government bills, rather than enjoying the intended boon.

Issues worth noting

It's important to remember that even though the state has no income tax, the IRS takes its share. So, if an individual retirement account is a factor in an estate, it's wise to understand the tax rules associated with such asset transfers.

For example, if you are the named beneficiary of a spouse's traditional IRA (as opposed to a Roth IRA), you could deal with the inheritance in a couple of ways. Roll the funds over to an IRA you have in your name, or maintain your listing as a beneficiary.

Transferring the money to your own account doesn't incur a tax on the distribution if it's done within 60 days of the decedent's death. It also can continue to earn interest on a tax-deferred basis. One potential drawback is that if you are under 59 1/2, you can't take a distribution from the fund before reaching that age without incurring an early withdrawal penalty and income tax liability.

If you anticipate using the funds immediately, maintaining beneficiary status means you can take out funds. You will owe income tax, but you won't face a withdrawal penalty.

Another possible option is to turn down the inheritance by disclaiming it. However, that can raise another issue if the beneficiary might need to maintain eligibility for Medicaid long-term care benefits. By virtue of a 1993 federal law, Florida and some other states have adopted policies against disclaimers on the basis that they threaten the state's ability to recoup costs for care.  

Experienced estate planning attorneys know that there are various legal tools that can minimize tax liabilities. But they have to be identified to be effectively avoided.

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