Are There Taxes on My Kids’ Inheritance?

Summary

Ramsey Everyday Millionaires: Episode Summary

Episode Title: Are There Taxes on My Kids’ Inheritance?
Release Date: January 3, 2025
Hosts: Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, Dr. John Delony

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Introduction

In this insightful episode of Ramsey Everyday Millionaires, the Ramsey Network team tackles a listener's question about inheritance taxes and estate planning. The discussion centers around the complexities of transferring property ownership to children and the potential tax implications involved.

Listener’s Question

Melinda from Spokane reaches out with a concern regarding her mother-in-law’s intention to leave a mobile home to her two young adult daughters. She explains:

“She puts a mobile home on our property and we love her and she wants to leave that home to my daughters eventually. It has a DMV title and she wants it to just be a very simple probate avoiding kind of a thing. So if she adds the girls' names to the title, I just want to make sure that there's no unintended consequences.”
— Melinda [00:32]

Melinda seeks assurance that adding her daughters’ names to the property title won’t result in unintended financial or legal consequences, such as losing the homeowner's exemption or incurring taxes.

Discussion and Advice

Dave Ramsey’s Guidance

Dave Ramsey begins by addressing the legal nuances of property titles, emphasizing the differences in state laws:

“I don't know because I don't know the law in the state of Washington and that's what you'd need to find out... We're dealing with title rather than a house. Car titles are sometimes dramatically different from state to state.”
— Dave Ramsey [01:30]

He recommends exploring whether Washington State’s Department of Motor Vehicles (DMV) offers a Payable on Death (POD) designation for property. A POD can allow the property to transfer directly to the beneficiaries upon the owner's passing, potentially bypassing probate.

Ramsey continues by highlighting potential tax implications:

“There shouldn't be any tax issues. Does she owe money on the property on the mobile home? No, it's paid in full.”
— Dave Ramsey [02:59]

Since the mobile home is fully paid off, Ramsey suggests that adding the daughters to the title might not trigger immediate tax consequences. However, he cautions about possible future complications:

“Your grown daughters are going to own a mobile home sitting on dirt you own. This is going to cause a conflict.”
— Dave Ramsey [03:41]

Ramsey foresees potential family conflicts arising from co-ownership, advising that it might be better for the mother-in-law to leave the property to Melinda first, ensuring smoother transfer and management.

George Kamel’s Perspective

George Kamel supports Ramsey’s viewpoint, advocating for simplicity in estate planning:

“I just think whatever it's worth, I'd sell it and then just keep the money. Then eventually put it, I just keep it super simple.”
— George Kamel [05:29]

George suggests liquidating the mobile home to avoid future disputes and complexities, allowing the proceeds to be distributed according to the family's wishes without entangling property ownership.

Additional Insights

An Unknown Speaker adds to the conversation by reinforcing the importance of simplicity and immediate action upon inheritance:

“If she does do that, go ahead and have an agreement with your daughter that immediately upon mother in law's death. She's just going to hook up to the thing and sell it.”
— Unknown Speaker [05:36]

This advice aligns with the hosts’ emphasis on proactive estate planning to prevent potential conflicts and financial complications.

Key Insights

1. Understand State Laws: Property transfer laws, especially those managed by the DMV, vary by state. It's crucial to consult local regulations or a legal advisor to ensure compliance.

2. Consider Payable on Death (POD) Designations: Utilizing POD designations can simplify the transfer process, potentially avoiding probate and reducing legal hurdles.

3. Avoid Family Conflicts: Direct co-ownership of property can lead to tensions. Planning the transfer to minimize future disputes is essential for maintaining family harmony.

4. Simplify Estate Planning: Liquidating property or establishing clear agreements can streamline the inheritance process, making it easier for beneficiaries to manage.

5. Seek Professional Advice: Consulting with estate planning professionals can provide personalized strategies tailored to individual circumstances, ensuring optimal outcomes.

Conclusion

This episode underscores the importance of thoughtful estate planning and understanding the legal frameworks surrounding property inheritance. By considering options like POD designations and seeking professional guidance, individuals can ensure a smooth and tax-efficient transfer of assets to their heirs. The Ramsey Network team emphasizes that simplicity and proactive planning are key to avoiding unintended consequences and maintaining family relationships.

For more tailored advice on estate planning and inheritance, listeners are encouraged to consult with qualified legal and financial professionals.

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Notable Quotes:

• Melinda [00:32]: “...she wants it to just be a very simple probate avoiding kind of a thing.”

• Dave Ramsey [03:41]: “Your grown daughters are going to own a mobile home sitting on dirt you own. This is going to cause a conflict.”

• George Kamel [05:29]: “I just think whatever it's worth, I'd sell it and then just keep the money. Then eventually put it, I just keep it super simple.”

Transcript

[Dave Ramsey]

Foreign.

[George Kamel]

This episode is sponsored by SmartVestor. Connect with an investing pro for free at RamseySolutions.com invest. You're listening to Ramsey Everyday Millionaires where we talk investing, retirement, building wealth and outrageous generosity.

[Dave Ramsey]

Melinda is with us. Melinda is in Spokane. Hi Melinda, how are you?

[Melinda]

Hi. I'm healthy and well, thank you.

[Dave Ramsey]

Good. How can we help?

[Melinda]

I am my question it's about estate and inheritance. We on our property. We I call her my mother in love someone she put adu manufactured home on our property and we love her and she wants to leave that home to my daughters young adult daughters eventually. And it has a DMV title and looking into she wants it to just be a very simple probate avoiding kind of a thing. So if she adds the girls names to the title, I just want to make sure that there's no unintended consequences. Would she lose her homeowner's exemption? Is there any risk to adding names to the title ahead of time?

[Dave Ramsey]

I don't know because I don't know the law in the state of Washington and that's what you'd need to find out. You won't. I'm not worried about the insurance, but because this is a DMV title, a Department of Motor Vehicles title. It's more like a car. We're dealing with title than we are a house. And so and car titles are sometimes dramatically different from state to state as to how they're handled. What I would tell you to investigate with the DMV is is there a mechanism there in the state of Washington that allows a pod paid on death is what that stands for. And so you could put it, you could put it. It's almost like the beneficiary of a policy that can you put that upon death? This transfers to your daughter automatically. And it may be, it may be for instance some states allow you to do that on a bank account that a simple savings account at your bank can have a pod on it a paid on death to someone and it goes directly to them. Then it's not an issue of the will or probate at that point. But I mean the mechanics of it is that there shouldn't be any tax issues. Does she owe money on the property on the mobile home?

[Melinda]

No, it's paid in full.

[Dave Ramsey]

Okay, that's good.

[Melinda]

What's confusing to me is that I'm near Spokane in Idaho. If she pays property tax the same, you know, she gets the same kind of a tax bill that we do for our home.

[Dave Ramsey]

So she pays a personal property tax on it because she doesn't own the dirt under it. Right? You do?

[Melinda]

Yes.

[Dave Ramsey]

Okay, so she's not paying property tax. There might be a personal property tax on a mobile home in that area. That wouldn't be unusual at all. But she does not get a, she does not get a real estate because she doesn't own any real estate right now. Okay, can I, can I, can I interfere in your situation?

[Melinda]

Yes.

[Dave Ramsey]

Don't do this.

[Melinda]

Okay.

[Dave Ramsey]

Your grown daughters are going to own a mobile home sitting on dirt you own. This is going to cause a conflict.

[Melinda]

Okay.

[Dave Ramsey]

She needs to leave it to you because it's sitting on your property. And then you're going to promise her you're going to leave everything to your kids. And so whatever wealth this represents will ultimately go to your kids. But, but it's going to cause all, I mean, your daughters can't do anything with it. It's sitting on your land.

[Melinda]

Exactly. Yeah. And I think what I appreciate about what you're saying is we are in a situation where everybody is so amicable and there's no conflict right now that it just wouldn't open up opportunity. Yeah.

[Dave Ramsey]

But let's say your daughter wants to sell this thing.

[Melinda]

Okay.

[Dave Ramsey]

Now she's got to hook up to it and haul it somewhere and sell it or she, or she's going to come to you and want a piece of dirt under it given to her. And then you're going to have a next door neighbor that has nothing to do with anything because your daughter wanted to take this money and go buy a whatever. And everybody's still happy and amicable, but it's just really awkward. You're just begging. You're begging for conflict in this.

[Melinda]

That's so interesting. I love hearing an outside perspective on that.

[Dave Ramsey]

Yeah. It's up to you. I'll do whatever you want to do. And I think your mother's sweet mother in law, sweet as she can be, and she's trying to do a sweet thing here. But I personally wouldn't do that. And if I were your mother in law, I wouldn't do it because I don't want to cause potential trouble between my grandbabies and their parents. I want to keep this thing clean. The cleanliness of it is a big deal.

[George Kamel]

Yeah, I agree.

[Unknown]

I just think whatever it's worth, I'd sell it and then just keep the money. Then eventually put it, I just keep it super simple.

[Dave Ramsey]

Well, or if she does do that, go ahead and have an agreement with your daughter that immediately upon mother in law's death. She's just going to hook up to the thing and sell it. We're going to get rid of it and turn it into money. And you take that money and that was a blessing from your grandmother and that's good. But we're not going to leave it there and rent it sitting on having a rental property in a mobile home next door to you, Melinda, on land that you own, not just starting to get start awkward.

[Unknown]

It wouldn't be on their land if it wasn't the mother in law.

[Dave Ramsey]

Exactly.

[Unknown]

So it's like they don't want it there when she's gone.

[Dave Ramsey]

Exactly. Well, I mean unless one of the daughters moved into it. But then you've now we've ex, you know, we've, we've continued this. So it's, it's just there's all kinds of. You'll end up being a caller on the show later, I'm afraid.

[George Kamel]

Thanks for tuning in to Ramsey Everyday Millionaires. To learn more about how to plan for retirement, visit ramseysolutions.com retire or click the link in the show notes. Ramsey Solutions is a paid non client promoter of participating pros. Learn more at ramseysolutions. Com Smartvestor.