Legal Question in Wills and Trusts in Massachusetts

Mutual Fund Inheritence

Background: My father passed away on 17 May 2001. He had an IRA mutual fund which he willed to his three sons, with the exception that monthly dividends from the fund would be paid to his wife for the first three years, after which it would be equally split between his sons. His wife stated that the fund is currently worth $57,731.00, but withdrawl taxes on the fund would be approx $18,000.00 (between federal and state taxes).

Q1 - 32% seems like alot of tax. What is that amount based on? I believe all of us three are in a low (15%) tax bracket. We each are legal residents of different states (MA, FL, & AK). Does any of this have an impact on the amount of tax that needs to be paid?

Q2 - His wife said if the the funds were withdrawn by a retiree then the state taxes (MA) would not have to be paid. Is this correct?

Q3 - I was told that if we reinvest the money (within a specified time period) we could avoid paying some or all of the tax. Is this correct? And if so, would all three of us need to do so or could we each act independently?

Thank you very much in advance for your assistance!


Asked on 5/17/04, 12:26 pm

1 Answer from Attorneys

Re: Mutual Fund Inheritence

You and your brothers have several choices but you need to double check with your tax accountant. Basically, if you elect to have the lump-sum distribution roled over into an IRA for each of you, you may be able to avoid the tax entirely. You would then be able to withdraw it when you retire or begin to take withdrawls upon reaching the mandatory age.

My hesitancey is that I have not checked on the impact of your step-mother taking 3 years of dividends. Normally, if a beneficiary elects to role-over the IRA, they can do so and avoid the tax.

If you have additional questions, please feel free to contact me.

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Answered on 5/17/04, 1:00 pm


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