Simon and Patty were their deceased grandmother’s only surviving relatives. For

Question

Simon and Patty were their deceased grandmother’s only surviving relatives. For the three years before the grandmother’s death, Patty frequently visited the grandmother and helped with the household chores. The grandmother died and, according to the grandmother’s will, Patty was to receive the entire estate. Simon threatened to contest the will on the basis that the grandmother was “incompetent” when she wrote the will and that Patty had undue influence on the construction of the will. If Simon is successful in asserting his claim, he would inherit one-half of the estate. Rather than undergoing the expenses and hazards of litigation, the administrator of the estate agreed to give Simon $340,000 if he would not contest the will. The gross value of the estate is $2,700,000.

Simon seeks your advice on the treatment of the $340,000 if he decides to accept it.

What would be the tax consequence of accepting the $340,000 or one-half of the estate?

Explanation / Answer

If Simon receives $340000 as a settlemnet amount then this amount will be charged to tax as income from other sources, howere if he gets one half of the estate after contesting the case then the share of estate Simon received will not be charged to tax.

As anything received under will or inheritance is not chargeable to tax.

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