ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, July 29, 1996 TAG: 9607290085
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: I would appreciate it if you would answer the following questions about settling an estate:
1. Is an estate tax return required if the gross estate exceeds $600,000 but debts and expenses reduce it below $600,000 and no taxes are owed?
2. Is life insurance includable in an estate when it is not paid to the estate but to the spouse?
3. What portion of real estate that is jointly owned as tenants by the entirety with right of survivorship would be includable on an estate return? Would it be different if it were owned as tenants in common?
4. What portion of certificates of deposit owned jointly with right of survivorship is includable on the estate return?
A: Anyone who is handling an estate that is at or near the taxable amount of $600,000 probably should retain the services of a lawyer who is experienced in that field. Furthermore, anyone who believes his or her estate will come close to that margin should engage such a specialist lawyer to write a will and undertake estate planning in advance of death.
Harry Rhodes, a tax and estate lawyer with the Roanoke firm of Bersch & Rhodes, gave an affirmative answer to your first question. He said an estate tax return must be filed for any estate with assets of $600,000 or more regardless of whether it is offset by expenses and regardless of whether taxes are actually due.
The beneficiary under an insurance policy doesn't matter, Rhodes said. The question is the identity of the person who owns the policy. The legal concept is the fact or degree of ownership.
The amount of the policy is included in the estate if the person who died owned the policy, Rhodes said.
Most people own their own life insurance policies, Rhodes said, because ownership carries the right to change the beneficiary. Most people want to keep this right for themselves. (Some policies owned by a business on the life of an officer or other employee give the insured person the right to change beneficiaries, Rhodes said. This is an exception to the rules that cover individual policies.)
Other evidence of ownership includes the right to assign the policy and the right to borrow against the policy.
If the deceased person kept the ownership, as most people do, the amount of the policy proceeds is included in the estate.
In answer to your third question, Rhodes assumed the real estate was owned by a husband and wife, the most common users of tenants by entirety. (That means each owns all of the property, while tenants in common would each own half of the property.)
If a husband and wife are the owners, Rhodes said, then half of the value is taxable.
The exception is for property acquired prior to 1977. In that case, he said, the test is the identity of the person who contributed the purchase price. If one of the couple inherited the money used to acquire the property, then the property is included in that person's estate. If only one of the couple held a job, then that person would be the taxable owner.
But if the property was acquired in 1977 or later, Rhodes said, then each of the couple owns half.
Rhodes pointed out that this has future tax implications. The half of the property that is taxable also receives a step-up in the tax basis to the person's date of death. When the survivor sells, he or she has a higher tax basis in half the property. This may ultimately work out to the survivor's advantage, Rhodes said, even though the estate tax may be onerous now.
When it comes to the certificates of deposit, Rhodes said, half of the value is subject to estate tax if the CDs were owned by a married couple.
If other relationships were involved, such as a mother-daughter, the person who set up the certificate is the full owner. If a mother, for instance, sets up a CD and includes the daughter's name, the full amount is included in the mother's estate for estate tax purposes if she dies.
Rhodes said there is an exception if the mother set up the CD so as to require the daughter's signature, as well as her own, in order to withdraw the money. In such a case, the money is presumed to be a gift at the time the certificate was created. But Rhodes said such an arrangement is rare. Usually the person who adds another person's name means the money to be an inheritance, not an outright gift.
Q: I have some U.S. Savings Bonds from the early 1990s. When will they mature, and how much interest are they paying?
A: The date of maturity, or the time the bonds reach face value, will depend on the various interest rates they earn over the years. Bonds pay a floating interest rate that varies with the market. To learn the interest rate your bonds are earning, you would have to consult a listing of earnings. You can get this table by writing to the Bureau of Public Debt, 200 Third St., Parkersburg, W.Va. 26106-1328. For bonds purchased since May 1995, you can obtain the current rate yourself by calling (800) 487-2663 each May1 and Nov.1. Bonds in this category are currently earning 4.36 percent.
Bonds pay interest after maturity, however. Bonds purchased since 1966 earn interest for a period of 30 years when they reach final maturity.
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