Tax Advice... Inheritance Question. - PeachParts Mercedes-Benz Forum

96C220 · #1 11-05-2010, 09:02 AM

Friend of mine had a tax question, which raised an interesting scenario.

He is a US citizen, with family ties to Europe.. He inherited some property abroad when his father passed. At this point he's in the process of selling said property. But he has a question with regards to the funds.

Since there is no Estate Tax presently (or when he inherited said property), theoretically he is not subject to any taxes on acquiring title to the property as far as the US is concerned. Now, since the proceeds from the sale are essentially still an inheritance - would he be liable for any US taxes on the funds? Can he transfer the funds to the US? What sort of declaration / proof would they expect as far as the origin of the $$?

He seems to think that he would be taxed on the money, or questioned as to it's origin. The debate is whether this money is taxable or not due to the fact that it's original source was the inheritance.

Anyone have any knowledge / ideas??

Thanks,

George

benhogan · #2 11-05-2010, 09:12 AM

2010 is a great year to die. No estate tax.

To answer your question- No estate taxes are due. He can have the money wired over as one lump sum. No need to declare anything unless the IRS questions it later on.

Just make sure that he and his spouse are US citizens and the decedent (the relative who died) expired in 2010.

If his spouse is not a US citizen, it changes things quite a bit.

96C220 · #3 11-05-2010, 09:19 AM

Quote:

Originally Posted by benhogan

2010 is a great year to die. No estate tax.

To answer your question- No estate taxes are due. He can have the money wired over as one lump sum. No need to declare anything unless the IRS questions it later on.

Just make sure that he and his spouse are US citizens and the decedent (the relative who died) expired in 2010.

If his spouse is not a US citizen, it changes things quite a bit.

He's not married. The relative (his father) died in 2006, however between actually inheriting the property (going through the European process etc) , deciding to put it up for sale, waiting for a buyer to surface etc, he's selling it now.

Don't know if that changes anything?

George

benhogan · #4 11-05-2010, 09:33 AM

Quote:

Originally Posted by 96C220

He's not married. The relative (his father) died in 2006, however between actually inheriting the property (going through the European process etc) , deciding to put it up for sale, waiting for a buyer to surface etc, he's selling it now.

Don't know if that changes anything?

George

If your friend is a US citizen, there are no taxes to be paid when the money comes in to the US.

Keep in mind a couple of things-

1. He cannot wire the money out of the US later on (say he changes his mind). After the money comes into the US, it becomes subject to US laws (obviously he has to pay taxes on interest it earns, etc etc) but there is no tax to bring it in. If the money comes in then he decides to wire the money out, he might be accused of money laundering.

2. This money that comes in now becomes part of his future estate and will be subject to US estate tax laws. This tax kicks in when your friend dies.

So the bottom line is, no taxes are due NOW. When his kids inherit the money, there might be taxes due if the amount is large enough.

Just make sure 100% that he is an US citizen. That is the key point.

96C220 · #5 11-05-2010, 09:43 AM

Quote:

Originally Posted by benhogan

If your friend is a US citizen, there are no taxes to be paid when the money comes in to the US.

Keep in mind a couple of things-

1. He cannot wire the money out of the US later on (say he changes his mind). After the money comes into the US, it becomes subject to US laws (obviously he has to pay taxes on interest it earns, etc etc) but there is no tax to bring it in. If the money comes in then he decides to wire the money out, he might be accused of money laundering.

I thought you are free to do what you wish with your $$ as long as you follow proper IRS reporting procedures... i.e. fill out the form when there is a transaction over 10k etc.. Also you have to declare any foreign bank accounts you may own if the total value of them exceeds 10k

2. This money that comes in now becomes part of his future estate and will be subject to US estate tax laws. This tax kicks in when your friend dies.

Yes this part is obvious, as far as US Estate laws, hopefully that's a long time in the future..

So the bottom line is, no taxes are due NOW. When his kids inherit the money, there might be taxes due if the amount is large enough.

As far as the IRS, when low 7 figures get wired into a US account, there's no question as to it's origin??

Just make sure 100% that he is an US citizen. That is the key point.

Yes, he is a Naturalized US Citizen

George

benhogan · #6 11-05-2010, 10:02 AM

Quote:

Originally Posted by 96C220

Yes, he is a Naturalized US Citizen

George

No problem. They are not going to question the incoming funds because it is incoming. Do it in one lump sum and not in smaller amounts (to avoid being on the radar). If everything is on the up and up (which I am sure it is), just be ready to provide supporting documents if anyone asks. I doubt if they will ask.

The logic is this. They will gladly welcome any money coming into the US from Europe because they know that once it is here, they will get their cut (taxes, estate taxes) later on because he is a US citizen.

For completeness, let us assume that he is NOT a US citizen and the money gets wired in to his local bank. Let's say your friend lives for 50 years and the money grows exponentially. If he dies and all his heirs are back in Europe, the US has no estate taxes to collect because he is not a US citizen. The money will just go to the heirs (they might pay european estate taxes if any). The US will miss out on the tax even after the guy enjoyed the money for 50 years. Instead, they will want to tax it as it comes in or at least insist that the money be put in a US trust so it will be subject to taxes without any escape.

Hope that helps.

Lastly, I assume the money is coming from a 'friendly' country and not, well, you know what i mean.

96C220 · #7 11-05-2010, 10:24 AM

Quote:

Originally Posted by benhogan

No problem. They are not going to question the incoming funds because it is incoming. Do it in one lump sum and not in smaller amounts (to avoid being on the radar). If everything is on the up and up (which I am sure it is), just be ready to provide supporting documents if anyone asks. I doubt if they will ask.

The logic is this. They will gladly welcome any money coming into the US from Europe because they know that once it is here, they will get their cut (taxes, estate taxes) later on because he is a US citizen.

For completeness, let us assume that he is NOT a US citizen and the money gets wired in to his local bank. Let's say your friend lives for 50 years and the money grows exponentially. If he dies and all his heirs are back in Europe, the US has no estate taxes to collect because he is not a US citizen. The money will just go to the heirs (they might pay european estate taxes if any). The US will miss out on the tax even after the guy enjoyed the money for 50 years. Instead, they will want to tax it as it comes in or at least insist that the money be put in a US trust so it will be subject to taxes without any escape.

Hope that helps.

Lastly, I assume the money is coming from a 'friendly' country and not, well, you know what i mean.

He is a US Citizen as mentioned before. The property and the money would be coming from Greece. So it seems as though he would be good to go.

George

benhogan · #8 11-05-2010, 10:57 AM

Quote:

Originally Posted by 96C220

He is a US Citizen as mentioned before. The property and the money would be coming from Greece. So it seems as though he would be good to go.

George

I don't know about Greece. I've only dealt with the UK and Germany. Good luck though.

jcyuhn · #9 11-05-2010, 11:00 AM

The estate tax law which applies is that in effect the year his father passed, so 2006. The 2006 estate exemption was $2M. If the amount of his inheritance is less than $2M he is good to go. If it exceeds $2M (based its value in 2006, not value today) then he owes taxes, and is quite likely delinquent and will owe interest and penalties.

Assuming he has a CPA and/or tax attorney handling the estate, he needs to sit down and have a chat. If he doesn't - well, it's time to hire them. His dad needed to file a 2006 tax return even though he was dead

- hope this was done.

I've now exceeded the limits of my knowledge on this topic...

benhogan · #10 11-05-2010, 11:03 AM

I agree. Even though the info I just shared with you is accurate, I do not know if the US has a special agreement with Greece regarding this issue.

He needs to find a lawyer or CPA who is familiar with such things.

96C220 · #11 11-05-2010, 11:27 AM

Quote:

Originally Posted by jcyuhn

The estate tax law which applies is that in effect the year his father passed, so 2006. The 2006 estate exemption was $2M. If the amount of his inheritance is less than $2M he is good to go. If it exceeds $2M (based its value in 2006, not value today) then he owes taxes, and is quite likely delinquent and will owe interest and penalties.

Assuming he has a CPA and/or tax attorney handling the estate, he needs to sit down and have a chat. If he doesn't - well, it's time to hire them. His dad needed to file a 2006 tax return even though he was dead

- hope this was done.

I've now exceeded the limits of my knowledge on this topic...

Spoke to my friend briefly regarding your questions.

From my understanding, the value is less than $2M, (It's being sold for 1.2M - 800,000 euro now, but how to determine the value in 06?)

There was a joint returned filed with his surviving spouse in 2006. There was no CPA / Tax Attorney involved Stateside at the time of his passing, because he had retired back to his homeland, and essentially owned nothing in the States, besides a home which was Jointly owned with his wife, (and she has title to now), and a small joint bank account which she also kept. This particular property was willed to the son (my friend), However there was no US will, just a Greek one. The stepmom has been amicable, and respected her husband's wishes, as far as the son inheriting the property.

Is the 2M cap on the Entire Estate (I believe the US home is worth somewhere in the 4-500k range - does it even qualify since it was jointly owned?) Or on an inheritance willed to a particular individual.

George
T

benhogan · #12 11-05-2010, 11:35 AM

Quote:

Originally Posted by 96C220

Spoke to my friend briefly regarding your questions.

From my understanding, the value is less than $2M, (It's being sold for 1.2M - 800,000 euro now, but how to determine the value in 06?)

There was a joint returned filed with his surviving spouse in 2006. There was no CPA / Tax Attorney involved Stateside at the time of his passing, because he had retired back to his homeland, and essentially owned nothing in the States, besides a home which was Jointly owned with his wife, (and she has title to now), and a small joint bank account which she also kept. This particular property was willed to the son (my friend), However there was no US will, just a Greek one. The stepmom has been amicable, and respected her husband's wishes, as far as the son inheriting the property.

Is the 2M cap on the Entire Estate (I believe the US home is worth somewhere in the 4-500k range - does it even qualify since it was jointly owned?) Or on an inheritance willed to a particular individual.

George
T

the stepmom (who lives in Greece) is still alive?

96C220 · #13 11-05-2010, 11:43 AM

Quote:

Originally Posted by benhogan

the stepmom (who lives in Greece) is still alive?

Yes, she is.

benhogan · #14 11-05-2010, 11:54 AM

Quote:

Originally Posted by 96C220

Yes, she is.

George,

This is a whole new can of worms. The fact that the decendent was married makes things a lot more complicated. The house belongs to the surviving spouse. If the house is given to your friend (or sold and the money is given to your friend), it is not an inheritance, it is a gift from the surviving spouse.

It is complicated because of many things. One biggie is how the house was originally owned. Was is a Joint Tenants With Rights of Survivorship or was it Tenants in Common. Or if Greece has such a thing. This has a big impact on the eventual result of all this.

Since there is a surviving spouse in the picture (you did not say in the original post), it may negate everything that I have previously stated.

Sorry man, I don't know what to tell you from here other than get help from a CPA who knows about money matters specifically from Greece. Not any old CPA will work in this case.

96C220 · #15 11-05-2010, 12:02 PM

Quote:

Originally Posted by benhogan

George,

This is a whole new can of worms. The fact that the decendent was married makes things a lot more complicated. The house belongs to the surviving spouse. If the house is given to your friend (or sold and the money is given to your friend), it is not an inheritance, it is a gift from the surviving spouse.

It is complicated because of many things. One biggie is how the house was originally owned. Was is a Joint Tenants With Rights of Survivorship or was it Tenants in Common. Or if Greece has such a thing. This has a big impact on the eventual result of all this.

Since there is a surviving spouse in the picture (you did not say in the original post), it may negate everything that I have previously stated.

Sorry man, I don't know what to tell you from here other than get help from a CPA who knows about money matters specifically from Greece. Not any old CPA will work in this case.

See from my understanding, Greek Property Law is different. - All that matters is who is on title.

The house was owned prior to their marriage by him, and titled soley in his name. The house was willed to the son. The son acquired and has free and clear title to the house, by virtue of inheritance, in Greece. She was never on title, and as far as Greek law is concerned, never had a legal claim to the property.

The only scenario in which she would was if he was to have passed without a will, where lacking a will Greek law dictates that 25% of the estate is passed to the wife, and 75% distributed amongst the deceased's children). Since in this case there was a clearly defined will, which willed the property to the son, and she did not challenge this - I don't THINK she's involved.

George