Can someone explain the “ins and outs” of inheritance tax for me?

1. Talk to a estate/succession attorney when they die.
2. The federal estate tax limit is 5.45 million for 2016. As long as the value of their estate is not over that limit, there is no federal estate tax.
3. If in Louisiana, Louisiana does not have an state inheritance tax. If in another state, see No.1.

Edit to add: Also, your wife will get a stepped up basis on the house. For instance, if the parent's bought the house 10 years ago for $300,000, and it is $400,000 when they die, her basis on the property will be $400,000, so then if you sell for $420,000, you will only pay taxes on $20,000 (not $120,000).

On a federal level, the estate tax is assessed on the estate (i.e. before assets get to the heirs). You can leave after you die / gift while alive over 5 million per person, plus an unlimited amount to your spouse (plus an unlimited amount of smaller gifts over your life). Odds are unless your wife's family is loaded, this will not be an issue.

A few states have their own estate tax or an inheritance tax (a tax on the assets in the hands of the heirs). Most southern states have neither, Louisiana nor Texas does.

When someone dies, their basis in their ownership of the assets "steps" to the FMV of the asset at the time of death. Any income from the asset (such as dividends) is taxable just like regular income.

In the case of the house, when you get the house at death, your basis is 400K. If you sold it, you would pay capital gains tax on the gain using 400K as a basis. (assuming you didn't personally live in it after getting it before you sold it)

This helped, thanks.

Since I live in TN and they live in MS, which state inheritance laws would we follow? I'd assume MS.

What's a ballpark figure on total $ involved? If over the basic exclusion amount (what the poster above stated -- 5.45 million) and the deceased spousal unused exclusion (when that comes into play), you might want to take advantage of yearly untaxed gifts. For instance, your in laws could make a # of 14k per year untaxed gifts to various family members.

Above isn't legal advice. And you also have to find out what your in laws want to do with the $. I would also bring your in laws to an estate/tax attorney if the $ is significant.

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They named me in their will as being the controlling entity of their money and estate. Does that not give me the rights to do this stuff?

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It depends on exactly what the will says...simply naming you as executor doesn't give you ownership rights over it all. You would simply be the person tasked with seeing that the assets are disbursed in accordance with the terms of the will. You can be paid a fee out of the estate for doing what needs to be done (ex: arranging for appraisals, the sale of substantial tangible property or other things specified in the will).

"Controlling entity" does not necessarily mean what you think. If the will specifies that Daughter X gets 50% and Daughter Y gets the other half, then you may be paid a fee as executor for arranging the sale of the house, etc. but the proceeds of the house sale still belong to Daughters X and Y.

You need to have a clear & civil conversation with them to ensure you understand their wishes/intent. If they have indeed left it all to you, be prepared to deal with the potentially unhappy disinherited siblings, and with your wife. Nothing sets people off like grief & money.

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It depends on exactly what the will says...simply naming you as executor doesn't give you ownership rights over it all. You would simply be the person tasked with seeing that the assets are disbursed in accordance with the terms of the will. You can be paid a fee out of the estate for doing what needs to be done (ex: arranging for appraisals, the sale of substantial tangible property or other things specified in the will).

"Controlling entity" does not necessarily mean what you think. If the will specifies that Daughter X gets 50% and Daughter Y gets the other half, then you may be paid a fee as executor for arranging the sale of the house, etc. but the proceeds of the house sale still belong to Daughters X and Y.

You need to have a clear & civil conversation with them to ensure you understand their wishes/intent. If they have indeed left it all to you, be prepared to deal with the potentially unhappy disinherited siblings, and with your wife. Nothing sets people off like grief & money.

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Yeah, I'm just executor I believe. The money and house is being left 50/50 to the daughters.

However, I am the person that makes the decision to sell the house or not (or wait and sell after a certain period). I'll need to get an attorney to help me make that decision when the time comes. If I indeed sell it, then the profits go 50/50 to the daughters.

I won't be charging a fee though

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It isn't what each person gets, it is the total estate...

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Ok, good to know.

Still, in total, its less than half of 5.45 million.

Sorry to hijack

What's the federal % taxed after the 5.45? Say it's 6mil worth of land and homes. Taxes would have to be paid on the remaining 550k?

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Say we get her parents’ house that is worth $400,000 and paid off. What would we owe? Just property taxes? Could I sell the house with just standard taxes or would inheritance tax come into play there as well?

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Others have given more in depth answers, but the only thing you should owe is state taxes. As long as you are below the $5m mark, the feds don't care.

Yes, you can sell the house or any other assets (stocks) without paying the short term gains penalty of you only owning the assets for a short period of time. When you file your taxes, your CPA should put down that it was an inheritance as the acquisition date and there shouldn't be any penalty.