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Articles Tagged with inheritance

By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley, LLP

exchange gifted property

If you receive a vacation home as a gift, you can exchange it for another property to avoid a big tax hit.

Receiving a home or significant piece of property as a gift may sound wonderful. And it is, in nearly every case.

But sometimes when you get a piece of property as a gift, it’s not quite what you want, or perhaps it is too much of a burden to handle. You may decide to sell it, or, you may find it more advantageous to do an exchange. That’s a strategy we recommend to clients on occasion to help avoid tax on a second home. That tax is usually at the more advantageous capital gain rate, but nevertheless, it is still tax dollars out of your pocket.

I’ll explain how it works.

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By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley

lottery tix photoWe all would love a nice windfall of unexpected money. Whether that’s winning the lottery, receiving an inheritance or taking home a fat prize from a TV quiz show, it’s nice to think about what we might do with sudden wealth that we didn’t really do much to earn, and comes in a large lump sum.

In the case of lottery or quiz show winners, the first thing you want to do is tell everyone because you are excited. But that’s a mistake – a big one. When people know that you have an unexpected amount of cash coming your way, people you haven’t heard from in years will ask you for money. Also expect that your everyday friends may ask for money – and it may surprise you who makes that ask. Then comes the charities and those who represent those organizations.

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By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley

Ah, Florida. It calls to retirees like the mythical siren calls to sailors. Warm weather, year-round golf, palm trees on every corner, not a flake of snow and the promise of lower taxes bring the 60-plus set to our Southern-most state at record rates. In fact, Florida is now the nation’s third most populous state.

The Journal of Accountancy notes that 19 states impose an inheritance tax on top of other federal taxes. Both Kentucky and Tennessee have an inheritance tax, although Tennessee will eliminate its inheritance tax in 2016. This means if you inherit property from an estate of someone who moved to Kentucky or Tennessee and passed away in either state, you might be giving a portion of those proceeds from the estate to the respective state government – if the proceeds are above certain thresholds and, at least in Kentucky, depending on your relationship to the deceased.

What complicates matters is that governments in some states seem highly suspicious of those who move away. Some put families who have inherited an estate through rigorous paperwork to try to get out of paying estate taxes in that state.

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Nathan Vinson

Nathan Vinson

By Nathan Vinson, Attorney
English, Lucas, Priest & Owsley, LLP

An Individual Retirement Arrangement (IRA) may be a vehicle available to Kentucky residents to avoid Kentucky’s inheritance tax.  The Kentucky inheritance tax is payable by the beneficiaries of a person’s estate, depending on what the beneficiary received and the relationship of the decedent to the beneficiary.

“Class A” beneficiaries are exempt from the inheritance tax and include parents, surviving spouses, siblings (whether full or half), children (including adopted children and stepchildren), and grandchildren.

“Class B” beneficiaries enjoy a partial exemption from the tax and include aunts, uncles, nephews and nieces (including by the half), daughter-in-laws, son-in-laws, and great-grandchildren (including those who are the grandchildren of adopted children and stepchildren).

All other beneficiaries are considered “Class C” beneficiaries and are afforded a nominal exemption from the inheritance tax.  With the highest rate of Kentucky’s inheritance tax being 16%, Class B and Class C beneficiaries may take a big hit if they inherit any sizable amount from the decedent’s estate.

Here is where planning opportunities arise using IRAs.

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tax law booksBy Nathan Vinson, attorney

English, Lucas, Priest and Owsley, LLP

Life estates have long been an efficient and simple succession planning device for those who want to leave their homes to loved ones when they die.

Here is a basic illustration of how it works:  Mom has survived Dad and owns her house outright.  She still lives in the home, which has a value of $300,000.  Mom wants to leave the home to her Son at her death.  So, Mom gives her house to the Son (the “remainder interest”) and reserves the right to live in the home during her life (the “life estate”).

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