Power of Attorney and Anticipated Inheritance from a Relative Who Lives in Another State

If someone has designated you as their agent with a Power of Attorney, it’s important to understand what this legal document does and does not empower you to do.

A Power of Attorney (POA) gives you the legal right to manage a person’s financial affairs while they are alive, according to an article on NJ.com, “Inheriting money from out-of-state relative.” What most people don’t realize is that the POA is only in effect, while the person who named you their agent is living.

When the person dies and you are the beneficiary, you’ll need to know what your tax liability may be.

There are two distinct types of taxes that may be imposed by a state where the person is a resident at the time of their death. An estate tax may be required to be paid on the estate of an individual before the property is transferred to the beneficiary. There is also the inheritance tax. This tax is imposed on certain individuals who inherit property from an estate. Whether a state estate tax or inheritance tax must be paid, is dependent on the laws of the state where the person was a resident at the time of death, not the state where the beneficiary lives.

The estate of a person who is a resident of New York and dies between April 1, 2017 and Dec. 31, 2018 is subject to a New York estate tax, only if the value of the estate exceeds $5.25 million. On January 1, 2019, the New York estate tax exemption will equal the federal estate tax exemption. It is anticipated to be about $5.9 million.

In some states, the relationship between the testator and the heirs may make them subject to an inheritance tax.

If the relative, for example, owns real property in New Jersey, there’s an inheritance tax of 15% imposed by the state on the value of that real property. When a person inherits the estate assets, there would be a step-up in basis for any appreciated assets. This means that there shouldn’t be any capital gains tax on those assets, if they’re disposed of for the date of death values.

An estate planning attorney will be able to help you work through the tax consequences and the practical steps that need to be taken, when inheriting assets from a family member who lives in a different state.

Reference: NJ.com (June 6, 2017) “Inheriting money from out-of-state relative”

Please visit our website to learn more about the steps to take and options when receiving an inheritance.