Ask Liz Weston

Get smart with your money

Inheritance

Q&A: Why tell the IRS if you sell gold coins?

By

Dear Liz: Regarding the inherited gold coins question, why would anybody tell the IRS they inherited coins and subject themselves to a 28% capital gains tax? That seems very illogical.

Answer: To clarify, the original reader was asking about selling gold coins which had risen dramatically in value since she inherited them. Coins are considered collectibles so the difference between the inherited value and the sale price would be subject to a 28% federal capital gains tax.

How would the IRS know if you’ve sold gold coins for a profit? A dealer who buys the coins might be required to file a form with the IRS that’s designed to thwart money laundering. Also, payments are typically made through bank transfers or checks, unless you’re planning to walk out with a bag of cash like a cartoon bank robber. Bank transactions could be examined if you’re ever audited.

Even if you calculate the odds of getting caught as low, the question remains: Do you only do the right and lawful thing when you have to?

Most people who aren’t sociopaths have a sense of integrity. Doing something they know to be wrong damages that integrity, even if no one else ever knows. You may be able to save a bit of money by cheating on your taxes, but you can’t put a price on a clear conscience.

Q&A: What should I do with inherited gold coins?

By

Dear Liz: When my mother passed away nine years ago, I inherited some gold coins. At the time, it was difficult to go through her life’s belongings and part with things. Now that gold prices are so high, I’m wondering if it makes sense to sell those coins? I’m not sure holding on to them makes a lot of sense, but would appreciate any advice you might have.

Answer: Gold coins can be a good hedge against inflation as well as a portable source of wealth. But you need to store them securely to guard against theft and they probably should be insured, which can raise the costs of ownership.

If you want to turn your coins into cash, make sure to get at least three quotes from different sources such as reputable coin shops and jewelers. Also discuss the sale in advance with your tax pro. The difference between the value of the coins when you inherited them and their sale price would be considered a capital gain. Gold coins are taxed as collectibles, which means they’re subject to a 28% federal capital gains tax rate.

Q&A: How to track down lost savings bonds

By

Dear Liz: My mother passed away two years ago. She left a small mountain of paperwork which my brother, sister and I have finally started to sort through. Among the surprises that we have found is a receipt from a bank for the purchase of $4,500 of U.S. government savings bonds. The date of purchase is one month after the birth of her grandson in March 1992. We suspect that the bond was intended as a gift for the grandson. Is there a way to track down these bonds? Would a receipt from a bank be sufficient to satisfy the Treasury that the bond purchases were valid?

Answer: Savings bonds purchased in 1992 would have already matured and are no longer paying interest. If your mom didn’t cash in these bonds, you may be able to find them through the U.S. Treasury Department’s Treasury Hunt tool. You can find it at https://www.treasurydirect.gov/savings-bonds/treasury-hunt/.

Q&A: Can stepmother prevent siblings from sharing their inheritance?

By

Dear Liz: My father passed away in May of last year. In his trust, he intentionally left out one of my four children. The remaining three, who were to inherit a substantial sum, decided to pool their money and share it with their excluded sibling.

My stepmother, who is in charge of his trust, has told other recipients of his largess that she will not be distributing any money to my children. She claims that their decision to give money to their sibling is a violation of my father’s wishes. Can she do this legally and would there be any consequences to her for doing this?

Answer: That depends on the trust’s language. Your father may have granted your stepmother the power to make discretionary distributions, or may have explicitly stated that distributions could be withheld from your children if they planned to share with the disinherited grandchild.

That’s not the norm, however. If the trust requires her to distribute the money and she fails to do so, your children could sue her for breaching her fiduciary duties and ask a court to replace her as trustee, says Jennifer Sawday, an estate planning attorney in Long Beach. If your stepmother’s attorney hasn’t explained this to her already, your kids may need to hire one who will.

The unanswered question: Why did your kids make their plan known, rather than simply waiting close-mouthed until the money was distributed? Perhaps they wanted to make a show of solidarity with their sibling, but the smarter course would have been to keep their intentions under wraps until the money landed in their accounts and was theirs to spend however they saw fit.

Q&A: Navigating the Risks of 401(k)s, IRAs, and Payable-on-Death Accounts

By

Dear Liz: You recently wrote about the drawbacks of payable on death accounts, including that the funds go directly to the beneficiaries before the estate’s expenses are paid. Aren’t all 401(k)s payable on death? I’m often reminded to update my beneficiary info whenever I log into my account. Should 401(k)s be converted to IRAs once we leave our jobs when we retire? At least one of my 401(k) accounts from a previous job is still in that company’s plan, as it is a very good plan. Can we designate that certain expenses be paid from the accounts before our beneficiaries receive their inheritance?

Answer: Retirement accounts, including 401(k)s and IRAs, typically have named beneficiaries that will inherit the money directly. That means retirement accounts have the same potential drawback as payable-on-death bank accounts or transfer-on-death arrangements. If you have no other assets when you die, the person who settles your estate may have to appeal to these beneficiaries to return some of the money to pay your final bills. The beneficiaries usually would be under no obligation to cooperate, however.

You could name your estate as your beneficiary, but that could have some tax drawbacks so you should consult an attorney before doing so.