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Protecting inheritance money

post #1 of 7
Thread Starter 
I am getting conflicting information on this so I am wondering if anyone has BTDT. My dad passed away recently and he had my brother and I on an insurance policy through his work. We will each be receiving a little over 10K so I am wondering if this will be counted as income or if it will be taxed by the state/fed? My brother and I reside in different states so I'm not sure it that will make a difference.

Im also not sure what I will be doing with the money but I don't want to tie it up in anything long-term. Will it be ok sitting in a savings account or should I be putting it somewhere a bit safer?

Thanks!
post #2 of 7
some tax info here - will vary by state IIRC
http://www.bankrate.com/brm/itax/Edi...g/basic_3a.asp
post #3 of 7
scanning a few other websites, i do think insurance benefits are NOT taxed ...we just went thru this a few years ago, but my memory stinks
post #4 of 7
Quote:
Originally Posted by MidnightCommando View Post
I am getting conflicting information on this so I am wondering if anyone has BTDT. My dad passed away recently and he had my brother and I on an insurance policy through his work. We will each be receiving a little over 10K so I am wondering if this will be counted as income or if it will be taxed by the state/fed? My brother and I reside in different states so I'm not sure it that will make a difference.

Im also not sure what I will be doing with the money but I don't want to tie it up in anything long-term. Will it be ok sitting in a savings account or should I be putting it somewhere a bit safer?

Thanks!
I don't have any advice about the taxes, but I've heard Suze Orman say that when you receive $ under those circumstances you should just stick it in a bank account. Her advice was to not touch the money for 6 months or a year. As long as your account is FDIC insured, you $$ will be safe.
post #5 of 7
I honestly can't remember if insurance benefits are taxed, but I think they aren't. You will each get your share and then you will (individually) be liable for any taxes that you may incur in your state. I would spend no more than 10% in the short term. The rest of it, I would put in a 1 yr CD until I knew what I wanted to do with it for sure. As far as divorce is concerned, inheritances are usually viewed as separate property, unless it was explicity left to both the husband and wife, or during the course of the marriage it was used for the benefit of the marriage (say to buy a house that the couple resided in).
post #6 of 7
I think insurance money taxation varies a lot depending on amt and ins type (?). You have to report it. It's been 15 years, but my sister and I each got about $100K in insurance due to death and I'm fairly certain we paid taxes on it. Depending on where you put it, you could pay capital gain taxes on it in the years to come.
post #7 of 7
I *think* the only time inheritance is taxed is if it's a real item and you sell it - the amount you got is taxed. Someone correct me if I'm wrong, I'm still looking through the IRS website.

Quote:
No tax payable by the person receiving your gift or bequest. Generally, the person who receives your gift or your bequest will not have to pay any federal gift tax or estate tax because of it. Also, that person will not have to pay income tax on the value of the gift or inheritance received. However, covered gifts or bequests received from expatriates after June 16, 2008, may be subject to tax. Consult your tax adviser for more information.
http://www.irs.gov/publications/p950/ar01.html
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