Will my inheritance be taxed? 6 Answers as of December 27, 2011

No. You will not be taxed on the gift that your Aunt gives you. In addition, you are not taxed on an inheritance you will receive. Your Aunt may be subject to gift tax. At a minimum, she is required to file a federal gift tax return. When a donor (Aunt) makes a gift which is greater in value than $13,000.00, she may have a gift tax, if she has used all of her unified credit. Under the federal gift and estate tax rules, you start with the premise that a donor may be subject to gift tax or an estate tax upon death. You must then determine if there are any exceptions to the rule. First, a donor can gift $13,000.00 a year (gift tax annual exclusion) to as many as he or she wants as long as it given by midnight on December 31st . In addition, everyone has a credit, which is currently $5,000,000.00. That means that your Aunt can gift you up to $5,000,000.00 during her lifetime or upon her death. Since she is gifting you $50,000.00, $13,000.00 is excluded by the gift tax annual exclusion and the remainder ($37,000.00) is sheltered from tax by the unified credit. But now she only has $4,963,000.00 ($5,000,000.00-$37,000.00= $4,963,000.00) in credit available.

Generally speaking, an inheritance is not taxed to the party that receives it but rather to the party giving the property. An exception to this general rule is when the gift is of appreciated property so that when the person receiving the gift later sells it they have to pay tax on the difference between the cost basis on the property and the selling price. Thus if she gave you appreciated stock as opposed to cash, you could end up having to pay tax on the gain between what your grandmother's cost basis in the property and what it was sold for. This is why many people wanting to make a gift at year end will maximize the value of the gift by giving appreciated property to a charity at year end. Did this answer your question(s)? Details and context often affect the validity and usefulness of an answer that is based on a general statement of the law. You may need to consult directly with an attorney in order to get the best answer.

The limit for gifts during life are $13,000 before they are subject to gift tax.

No. But she should file a gift tax return with the IRS for the year she gives you more than $13,000.

Inheritances are not taxable income to the recipient. So you have no tax liability. Note, however that your aunt must file a Form 709, United States Gift Tax Return, where she gives you more than $13,000.

It's not inheritance when the donor is still alive - it is a gift. At that amount, your aunt would need to file a gift tax return. There may or may not be tax on the gift depending on your aunt's situation.