Inheritance and Taxes

You're best to check with your accountant right away about this as she or he will know your situation best. If you don't have an accountant, perhaps it's time to get one as they reallyt are an act of frugality. My accountant catches things we miss every year. We inherited money last year and did not need to pay any taxes on it. The rule on cash is that anything under one million can be left tax free. I do not know anything about annuity accounts. Do check with your accountant. The earlier you do this, the better you can plan. If you will owe taxes, your accountant can most likely think up a plan of action (like contributing to a 401K, college savings plan or the like) to reduce the money you'll need to pay in.

Hi PC,
First, my condolences on the loss of your father. That has to be horribly difficult.
As for your inheritance, you will pay taxes on the gain of the annuity as ordinary income. Whatever the annuity earned over the years is the gain. This could bump up your tax bracket come tax time so you may pay a bit more/less. All depends on your tax bracket.
I'm an office manager for an insurance company so if you have any other questions, I'm happy to help you, if I can. :) S.

Hi,

I'm a tax CPA and have seen a few tax returns. :)
However don't take my words as legal advice and as always, I do recommend you should see a CPA.

First off, what Shannon said below was correct. Any income on the annuity contract will be taxes at ordinary income tax rates.

To the best of my knowledge there's no inheritance tax in the state of MN (some states do have it at the state level). And there's no Federal tax due to inheritance. However, the inheritance, once the taxpayer passed away, has to pay estate taxes. The estate should have a personal representative who should take care of this matter. Oftentimes it's a family member. Estate tax return is very similar to an individual tax return.

Once all assets (investments including annuties) are distributed, then the estate will file a final return. Then whoever inherits the assets should include the income in his/her income tax return.

Hope this helps.

-Jenn, a mom of two kids

probably worth a quick call to a tax accountant. I can give you a referral to someone in Edina if you are interested