Determining Estate tax

[Review]

What is the name of your state?Virginia resident. Suspose one dies leaving an estate of approximately $3,000,000 to his children of which 1/2 is in IRA where no taxes were paid. Since currently 1,5 million is excluded from estate tax, how is the remainder taxed. Would you pay a high estate tax in addition to income tax as the IRA funds are distributed. Just wondering if I could avoid the large tax by withdrawing before I die etc. Thanks for your input.What is the name of your state? Virginia

 

[Dandy Don]

You can't avoid anything by withdrawing. This is a serious matter that demands you consult with a local CPA or tax accountant or a certified financial estate planner.

 

[dmode101]

What is the name of your state?Virginia resident. Suspose one dies leaving an estate of approximately $3,000,000 to his children of which 1/2 is in IRA where no taxes were paid. Since currently 1,5 million is excluded from estate tax, how is the remainder taxed. Would you pay a high estate tax in addition to income tax as the IRA funds are distributed. Just wondering if I could avoid the large tax by withdrawing before I die etc. Thanks for your input.What is the name of your state? Virginia

There is a provision in the code that mitigates this apparent double taxation. An IRA like this is what is termed "income in respect of a decedent" (IRD). When the beneficiary of the IRA receves distribution and pays tax he or she can take a deduction for estate taxes paid on IRD. It is a complex formula, but the purpose of it is so that you are not paying estate tax on income tax that would have been out of your estate had you withdrawn prior to death.