10 Aug Will we owe taxes when we inherit POD accounts?

Q. Mom is 99. She moved in with us during COVID and stayed. We sold her house and put the money in four money market accounts. They are in her name with her children as “payable-on-death.” What will be the tax liability when she passes?
— Beneficiary

A. We’re glad to hear you’re caring for your mom.

There are several items to consider here.

First, because you helped your mom sell her house during her lifetime, she may have recognized gain on the sale of her home in the year of sale, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

This would have happened if the sales price, less any costs of sale such as brokers’ commissions and attorney fees, was greater than her basis, which is the price she paid for her home plus the costs of any improvements, Romania said.

If your mom owned and used the home as her principal residence for at least two of the five years prior to sale, she can exclude $250,000 of the gain — the exclusion is $500,000 for couples filing a joint return, she said. Note the residency requirement is satisfied notwithstanding a senior requires nursing home care, she said.

So we just want to make sure the tax owed, if any, is paid correctly.

New Jersey no longer has an estate tax but it does have an inheritance tax, Romania said.

“The inheritance tax does not apply to transfers to children whether such transfer is pursuant to the terms of a will or by beneficiary designation or designation of children as `payable on death’ beneficiaries of bank accounts,” she said. “The federal exemption from estate tax is presently $12.920 million. Decedents who exceed this amount in transfers during life in taxable gifts or at death will incur a federal estate tax at a maximum rate of 40%.”

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This story was originally published on Aug. 10, 2023.

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