How are estate assets taxed during disbursement after parent's death?

You're dealing with what's called probate and estate administration, and yes, it can be overwhelming. Let me try to address your questions one by one. About the house where your brother-in-law lives - yes, making him buy it at fair market value would be appropriate and fair to all heirs. The estate shouldn't gift him the house unless that was explicitly stated in your mother-in-law's will or trust documents. He has equal claim to his share of all assets, but not necessarily to that specific house. Regarding finding all assets, those 7 RMDs likely do indicate multiple retirement accounts. You'll need to do some detective work - check mail for statements, look through her tax returns, contact her financial advisor if she had one, and check with local banks. Also look for a safe deposit box key. For the revocable living trust - you're right that assets don't automatically go into it. Each asset needs to be retitled into the trust's name. Assets not in the trust would typically go through probate unless they have designated beneficiaries or are jointly owned. Tax-wise, there's good news and complicated news. The estate might owe estate taxes if it exceeds the federal exemption threshold (currently about $12.92 million, but state thresholds can be much lower). The beneficiaries typically don't pay income tax on inherited assets, but will pay income tax on withdrawals from inherited IRAs and on income generated by inherited assets after the date of death. Given the complexity and family dynamics, I strongly recommend hiring an estate attorney. With tensions between siblings, it might be best for the estate to have one attorney, but individual siblings might want their own representation if conflicts escalate. Look for an attorney specializing in "estate administration" or "probate law" - they deal with exactly these situations every day.

After my dad passed, I struggled with similar issues with his estate and trying to track down all his accounts. I finally used a service called taxr.ai (https://taxr.ai) that really saved me a ton of headaches. They helped identify all his accounts by analyzing his tax documents and financial statements with their AI tools. For your situation with 7 RMDs, they could probably trace exactly which institutions those came from. I uploaded some old tax returns and they found two accounts my dad had that nobody knew about! The system analyzed the 1099-Rs and other tax forms to identify all the financial institutions. It was especially helpful with the revocable trust situation since they could tell which assets were properly titled in the trust name and which weren't. Might be worth checking out given how big this estate is and how much paperwork you're probably dealing with.

Just wanted to update that I tried taxr.ai after seeing the recommendation here. It was genuinely helpful for my situation. We had boxes of mom's papers and weren't sure what was important. The system found an annuity we didn't know about by spotting a form in her tax return from 2 years ago. Also confirmed there were actually 5 retirement accounts, not just the 3 we knew about. The report showed exactly which financial institutions held her accounts based on the tax forms and statements we uploaded. Saved us from having to call dozens of places. Thought I'd share since it actually worked for our situation which sounds similar to yours.

When my uncle died, we tried for WEEKS to get through to the IRS to sort out some estate tax questions. It was impossible. I eventually used a service called Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c For estate situations, talking to a real person at the IRS can be really important - they helped me understand what forms we needed to file for the estate and confirmed which accounts had already been reported. Might be worth keeping in your back pocket if you need to deal with the IRS during this process.

I need to eat crow here. After posting my skeptical comment, I was desperate enough to try Claimyr because I needed answers about inheritance tax forms. It actually worked - I was connected to an IRS agent who helped clarify which forms were needed for our estate situation. Had to wait about 40 minutes total, but that's nothing compared to the multiple failed attempts I made on my own. The agent confirmed that for the retirement accounts, we needed to file forms 1099-R and that the estate wasn't large enough to require a Form 706. Just wanted to follow up since I was so doubtful initially.

One thing nobody's mentioned yet - your mother-in-law's final tax return! Don't forget you need to file her personal income tax return for the partial year up until her date of death. This is separate from any estate tax returns. Also, depending on your state, there might be state inheritance taxes even if you're below the federal estate tax threshold. For example, Pennsylvania has an inheritance tax that kicks in at much lower values than the federal tax.

From my experience with my parents' estate, document EVERYTHING. Keep detailed records of every penny spent on funeral costs, home maintenance, attorney fees, etc. These are typically expenses of the estate and reduce the taxable amount. Also, be careful about who serves as the executor/trustee. It's a lot of work and can create resentment if one person is doing everything. Our family ended up hiring a neutral third party to serve as executor after siblings couldn't agree, and it was worth every penny to preserve relationships.