Dear Liz: In a recent column, you quoted an attorney saying that if an inherited home in a trust is sold for its value at the date of death, the trust won’t owe capital gains. We sold our family’s house in 2007 within a month of my mother’s death and the government took half. Fortunately it was a really valuable house in Brentwood, but what are you talking about? I must be missing something.
Answer: If the government took half, then estate taxes — rather than capital gains taxes — probably triggered that hefty bill.
When your mother died, the estate tax exemption limit was much lower — $2 million, compared with the current $11.4 million. The top federal estate tax rate then was 45%, compared with 15% for capital gains.
I have very low net worth and have just inherited half a million dollars through a survivorship designation on a cousin’s annuity. Prior to payout I designated 20% withholding for federal income taxes and 10% for Maryland State income taxes on the interest earned by the annuity. My net worth is a house worth $400K with a 290K 3.75% mortgage, IRA accounts of $65K, Savings of 90K, a pension worth $500K from which I receive $50K annually and from which my health insurance and my husband’s are paid. He is 72 and receives $6,000/yr Social Security. I will turn 70 in a few months and must begin taking SS and tapping my IRAs. I have very little debt. What is the safest thing to do with this inheritance?