After my mother's recent death, I received $5,600 from her individual retirement account, $1,660 from her bank CD and another $4,430 from her regular savings. Plus, I'll also receive proceeds from her home's sale. How much is taxable to me? Does any fall under the $10,000 gift provision?

        This is one of Your Money's most frequently asked questions. No wonder: By some estimates, baby boomers will inherit $10 trillion in the next several years.

        “And they don't know exactly what to do with it,” said Francis J. Niehaus, a lawyer and financial planner in Price Hill.

        To make matters more confusing, the rules keep changing. Ohio and federal lawmakers both have raised questions on how much of an estate is taxable. So how much does this Symmes Township man owe?

        Nothing — even after all the recent changes. Gifts and inheritances have never been taxable to the recipient. Well, almost never, as the IRA funds are one exception. Back to that later.
       

Estate taxes
        The estate tax — aka the hated “death tax” — is levied against the entire estate before it's distributed. What you receive doesn't matter.

        Estate taxes are levied only against estates totaling more than a certain amount. Ohio lawmakers raised that level for the state estate tax last year, from $25,000 to $200,000. It climbs to $338,000 next year.

        The federal exemption is rising more dramatically. This year, you may pass on $675,000 tax-free. The exemption is $1 million in 2002 and 2003; $1.5 million in 2004 and 2005; $2 million in 2006, 2007 and 2008; and $3.5 million in 2009. The federal estate tax is scheduled for repeal in 2010.
       

$10,000 gifts
        You mention this magic $10,000 figure — also a very frequently raised issue because it is so misunderstood.

        Remember, gifts and inheritances are always tax-free to recipients no matter what their size. But gifts larger than $10,000 can count against the donor.

        Remember those federal estate tax exemptions? Gift amounts of more than $10,000 get deducted from those. You gave $15,000 to a niece last year? Then if you die this year, you get to pass on $670,000 of your estate before the federal estate tax kicks in.

        But the gift limitation is per person, so giving $5,000 to each of three nieces wouldn't affect you at all.
       

IRA exception
        All this talk is about tax-free — but Uncle Sam will catch up, especially in a traditional IRA. The money went in before taxes were paid, so the government is going to want its due.

        But you pay income tax only on a distribution, not the account balance. So minimize taxes by taking the minimum distribution. Mr. Niehaus said if your life expectancy were 20 years, the government would want you to take at least one-20th of the IRA each year. You'd pay tax on $280 each year, while the rest kept growing.

        If this were a Roth IRA, in which contributions went in after being taxed, then a qualified distribution would be tax-free.

        Amy Higgins writes about personal finance for the Enquirer. You can reach her at 768-8373; ahiggins@enquirer.com; or Your Money, The Cincinnati Enquirer, 312 Elm St., Cincinnati 45202.

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