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Economics/money from an inheritance

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Question
Hello.  My question is in regards to money that is receivedby inheritance, through the death of a relative. My dads brother passed away 2 years ago, and left substantial money to his remaining 2 brothers.  Now that my dad has received his share, he wishes to share an amount of 150,000.00 with me.

The question is....Does any money that he gifts to me, from a non-taxable estate, become taxable income, that I would be required to pay taxes on? Common sense would tell me "no", but I also was told it is.

Can you help in this matter? Thanks for your time.

Answer
Scott, I'm sorry. Although I'm a CPA, I wouldn't be caught dead doing my own tax return. You need to talk to a CPA who does tax returns for a living. If you'll e-mail me privately--cfa2005 (at) gmail (dot) com--and tell me what city you live in, I might be able to suggest someone who can help you.

I can tell you that there is an annual limit to the amount of assets that one person can give to another without filing a gift-tax return. $150K is more than ten times that limit. There may be a way (or ways) to do what your Dad wants to do without it having tax consequences. In light of the money at stake and the potential taxes that would attend giving it to you in a lump-sum, buying an hour or two of a good CPA's time would be well worth it. Don't be cheap and short-sighted about this. There are good ways to save money, and there are bad ways. Those who do not know the Internal Revenue Code backwards and forwards "save money" in the most expensive ways imaginable when they decide to go it alone on this kind of stuff. If you do that, you'll wish you'd tried cordless bungee-jumping instead.

Hope I'm being helpful here. It's the best I can do because, at the end of the day, I don't know the answer to your question. But I do know a situation that requires a tax expert when I see one, and yours is it.

Please send me that e-mail.  

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Warren D. Miller, CFA, CPA, ASA

Expertise

My expertise in economics is limited to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Questions dealing with macroeconomics and other sub-disciplines of the subject should be submitted to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should not be hoarded. I also believe that such questions are likely to come those trying to cheat. Also, as one who was a full-time academic for half a decade, I can recognize test/homework questions several time zones away. Do not demean yourself by submitting such questions to me. Those who do so are cheating; I WILL call you out publicly. I have a zero-tolerance policy for cheating and dishonesty. In addition, please don't emulate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it can afford to pay for the expert advice we and others provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 20 years. We know what we're doing. Segue: Early on, some asked me for career advice; I gave it. I now get many such requests. The demand for a valuable good that is free is unlimited, so I now charge for that advice. Email me: cfa2005@gmail.com. Finally, PLEASE DO NOT ASK FOR INVESTMENT ADVICE. I am not licensed to provide such advice. If you want such counsel, talk to your financial planner or other financial adviser.

Experience

I work with Austrian economics (which differs in major respects from the traditional economics), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) every day in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and solutions to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.

Organizations
CFA Institute, Strategic Management Society, American Society of Appraisers, Academy of Management, Culver Legion, National Association of Scholars.

Publications
CFA Magazine, Strategic Finance, Valuation Strategies, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, Business Valuation Review, among others

Education/Credentials
Chartered Financial Analyst designation (2006); Accredited Senior Appraiser in Business Valuation (2006); Certified Public Accountant (1992); MBA - Oklahoma State University (1991); Completed all of my Ph.D. coursework in strategic management - Oklahoma State University (1983-87); BBA in finance and accounting - U. of Oklahoma (1975)

Awards and Honors
Business Valuation Volunteer of the Year (2001) - American Institute of CPAs; Winner - Oklahoma Humorous-Speaking Contest - Toastmasters International (1971)

Past/Present Clients
Names are confidential. However, the "sweet spot" of our target market is companies that are too big to be small and too small to be big. Usually, those are companies with employees in the 15-to-100 range. At the low end of that range is where companies can first take advantage of the specialization of labor. However, having everyone do everything is a tough habit for many--most, I would argue--small enterprises. That is why they not only remain small, but also fail to survive beyond a second generation. Only 5% (one in twenty) companies make it to the third generation of ownership.

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