The law says that a death benefit cannot be taxed. Is that law still active after it is moved account A to B?

Question

We have a $400k death pentalty that my mother will recieve in about 5 months. Law says that THAT money cannot be taxed, but it doesnt say that it cannot be taxed after it leaves that account. Is this law still active, after it is moved? I know my mother won't be taxed, but will the recipient be taxed?

As of now, it is a death benefit. After it goes to my mother, it will no longer be a benefit, but rather a bunder of moulah, correct? After it moves from my mothers to the recipient, the law that benefits cannot be taxed will be irrelevant. So the recipient MAY be taxed, correct? Please help, and good luck.
-Andrew

Answer 1

The taxability depends entirely on the make up of the funds. If there are IRA's, 401K's or other retirment funds there may well be taxes.

Seems to me you are skipping a few deaths first before you talk about what is handed down from Mom. hopefully she spends it all in her life time so there is none to pass down.

Answer 2

I would need to know who is the recipient and the conditions under which the recipient would receive the money.

If your mother gives away some of this money, the persons receiving this money will not pay tax on it. Your mother will possibly have to fill out a gift tax return (for gifts over $12,000), but no tax will be owed until her lifetime exclusion of $1 million is used up.

If your mother pays someone for goods or services, then that money is taxed to the person who receives the money.

If the money she receives earns interest or other income then your mother is subject to tax on the earnings.

Answer 3

It doesn't matter which account the benefit goes into. It's taxed when the recipient gets it (or NOT taxed, in this case). Once received, you can move it from account to account, just like your other money without incurring additional taxes. Only if it moves to the account of ANOTHER person is it then subject to tax, or any interest (only) earned on the base amount.

Answer 4

Do you mean the death tax?
taxable or not $400k does not meet the threshold. I forgot if it was $2 million or what, but 400 is well below .

Of course when the FAIRTAX ACT H.R. 25 passes, you will have no income tax , no death tax, no withholding. Only a retail sales tax on new items only. check it out. www.fairtax.org
Frequently Asked Questions about the FairTax http://www.fairtax.org/fairtax/faqs.htm

Answer 5

I do not understand you question, but:
1. Once it is moved into a regular account, any interest, etc., that it earns there is taxable.
2. I think that "$400k death pentalty" is not what you meant. A "death penalty" is when they execute someone.

Answer 6

Money in a 401K is pretax. It is taxed when it is taken out of the 401K, whether by the initial owner or by someone who inherited the 401K.

Answer 7

If your mother gives money to someone, then it may be taxed. The fact that she got it tax-free is irrelavent.