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On money© St. Petersburg Times, published April 22, 2001 What's best way for dying brother to leave assets?Q. I'm a 51-year-old divorced working woman with three grown children. My older brother, who is single, has terminal cancer. He plans to leave us his home in Connecticut valued at about $380,000, which we would sell and use to pay off the $120,000 mortgage. How should he leave us this property for the best tax advantage? Would it be best to leave it all to me and have me disburse proceeds to my children? Or should he divide it equally among the four of us? Are proceeds from an inheritance taxed? Do they get added on to your income when you file at the end of the year? Capital gains? If he leaves me a life insurance policy valued at $20,000, does it get added to my income that year? A. I am sorry to hear about your brother's illness, but the answers to your questions are all good news. There is no income tax on an inheritance or life insurance proceeds. Income tax comes into play if you inherit a tax-deferred investment, such as an IRA, annuity, retirement plan or savings bonds. Withdrawals from those investments are taxable. Any capital gains tax you might pay would be based on future appreciation. For example, if the house is worth $380,000 at the time your brother dies and you sell it two years later for $400,000, you and your children would have a $20,000 gain. Your brother should consult a lawyer in Connecticut about setting up a trust and titling assets other than life insurance policies in the name of the trust. He should set it up so you will be able to manage the assets if he has a period of disability before his death. Federal estate tax will not be an issue if his estate is less than $675,000. If your brother intends for you and your children to share equally, he should put that in his trust or will. Giving money to one beneficiary expecting him or her to share is not a good idea. One less obvious drawback is that you would have to file gift tax forms if you gave your children more than $10,000 apiece in a year. * * * Q. I am 50 and just received $30,000 in a medical settlement. I don't know where to start as far as investing. I already own a home and rental house. Can you help? A. Open an account with a money market fund and get a library card if you don't have one. This is a good chance to get started on a saving and investment plan that will pay lifelong benefits. Most of the money should go into your money market fund while you learn about investments. But you might get started investing with a $2,000 contribution to an individual retirement account. I suggest stashing the money in an index fund that tracks the Wilshire 5000 Index or the Standard & Poor's 500 Index as a way of getting market exposure while you study your options. Besides visiting the library, you might subscribe to a magazine such as Kiplinger's Personal Finance. (For information, call (800) 544-0155.) There also are dozens of good personal finance sites on the Internet. The "Online money map" section of this column offers at least one suggestion every week. Q. When my children were young, I purchased EE savings bonds in their names for college. My oldest child is finishing his second year of college and I am ready to start cashing some of them in. However, he has the Florida prepaid tuition plan and a Bright Futures scholarship that pays for his tuition and fees. I understand that you do not have to pay taxes on the bonds if you use them for educational expenses. Can I use the bond money for his rent, food, gas, school supplies and computer expenses? A. You are out of luck for two reasons. First, EE bonds have to be purchased in the name of the parent rather than the child to qualify for the tax break you mention. Second, tuition and fees are the only eligible expenses under this break. Online money map
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.
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