Legal Question in Wills and Trusts in Illinois

Re: Will settling my mother's estate effect my federal income taxes?

This is really an estate income tax question, but I'm a CPA as well as an attorney. Estates are taxed on income less deductions during the period in which they are open, under rules similar to individuals. However, if distributions from the residuary are made during a period, the distribution "carries out" the estate's net income, up to the amount distributed. And, the distribution has the same tax effect, whether in cash or in kind. the rules are complex, and there is great flexibility in selecting a fiscal year for an estate, which will determine which year the beneficiaries are taxed on any "distributable net income". Here are some points.

-You don't get a 1099. If any amount is taxable, you get a Form K-1, as does each other beneficiary receiving distributions.

-In many cases, there is a net loss from administration expenses that exceed net income, because of attorney, accounting and executor fees. These losses can be carried out to the beneficiaries only for the last period, i.e. when the estate is closed.

-there is a step-up in basis on estate assets, so gain or loss on liquidating the 1/3 interest may be different from what you may expect.

You should collectively talk to an attorney or CPA who understands these rules, and others, to calculate the tax under various options. That way, you can make an informed decision.

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Re: Will settling my mother's estate effect my federal income taxes?

You shouldn't be dealing with the estate without an attorney, and consult them.

I'm not clear if the account is an IRA or estate assets. If an IRA you can divide as you wish. If an estate you can divide in different parts as you wish. I doubt there is much income tax.

The actual closing of the estate, if there is one, can be next year but the distribution this year. In any case the taxable effect will probably be next year.

I urge you all to get together and consult some professional advisor.