It's time to catch up on some of the questions that readers have sent me.
Q: Earlier this year, I inherited money from an estate. Do I have to declare the inheritance on my tax return?
A: Probably not. As a general rule, inherited money is not treated as ordinary income and is not subject to income tax.
The big exception to this rule involves assets involving tax deferred dollars.
For example, if you inherit U.S. savings bonds and take them in kind, you may have to pay tax on the income that has accrued on the bonds when you liquidate them. Also, certain assets like IRAs and many annuities, will likely contain tax-deferred income that you will have to recognize as you take the money out.
You might also receive income from the estate. If the estate had income and it distributed money to you, it is possible that some of the income will flow out to you. The inheritance isn't subject to income tax, but the income off of the inheritance could be. If you have income from the estate, you should receive an IRS form K-1 after the estate has filed its fiduciary tax return. If you think that is a possibility, hold off filing your returns until you hear from the estate.
Q: I know that a small estate affidavit can be used to transfer bank accounts. Can it also be used to transfer real estate?
A: A small estate affidavit, or its more formal name, "affidavit for transfer of real property," can be used to transfer the title of real estate without formal probate. The same rules still apply as they do for a small estate affidavit for personal property. The gross probate estate, less liens, can not exceed $50,000, costs of administration and reasonable funeral expenses.
Assuming that the restrictions are met, you should be able to transfer title to real estate without formal probate. The affidavit must include specific information so you will definitely want to engage the services of an attorney.
If you do it wrong, it may not transfer title correctly and may be a cloud on the title. Remember, it's easier and cheaper to avoid a problem than solve it later so don't tackle this on your own. Hire a lawyer.
Q: My will indicates that the personal representative should proceed under unsupervised administration. What does that mean?
A: There are essentially two types of formal probate administrations, supervised and unsupervised. Supervised administration requires the court's involvement at virtually every step. Before the personal representative can take certain actions, she needs to notify the court and obtain an order.
An unsupervised administration is just what it means, no supervision. In an unsupervised administration, the court appoints the personal representative and instructs her to administer the estate and report back when she is done. It's actually a little more complicated than that, but you get the picture. Just remember that an unsupervised administration has limited court involvement.
That tends to make it cheaper and quicker.
Thanks for the questions.
Opinions expressed solely are those of the writer. Christopher W. Yugo is a member of the Indiana Bar and a vice president and senior trust Officer for First National Bank's Trust Department. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, IN, 46321. Yugo�s information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.
