Unfortunately, it looks like my in-laws are about to get a pretty sizable inheritance in the coming months.

The reason I say unfortunately is it's their next door neighbor who they have been looking after for the last 20-25 years. She's 101 with no living relatives and has cancer and broken numerous bones in the last month due to falls. She's headed home on hospice care, so it's likely she won't make it another 6 months.

Her will and legal documents state my FIL is to be the executor and will get her house along with all it's contents and 25% of her estate. The other 75% is being split 3 ways (everyone getting 25%) among a few other close friends of hers. Not including the house, she's got well over a million in assets that will be divided (stocks, bonds, cash).

My FIL does construction/maintenance work, so he's looking to update the house once she passes and sell for a profit (the other folks in the will all are aware of this and actually offered their portion of the house before the will was changed to have them getting the whole house...so no issues there). He's considering taking the money and buying a lake house (that's been in the works for a while), but is wondering if there's any options or ways to try and minimize the tax implications.

Not looking to specifics here, but mainly curious as to who would be the best type of person to talk to and assist with planning. It's not something I'm familiar with at all.

He should probably talk to a probate lawyer who is familiar with the county where the death is likely to occur and have him explain what the process will be like in that court. He should also likely have the original will in his possession now so he can get it to said lawyer right after the death. Depending on how backed up the court is, it could be a few weeks or a few months before he is legally the executor. That is why it's best to talk to a lawyer now to get a feel for how things will play out.

Not an expert, but I believe the cost basis of the house is stepped up to whatever the value is when she dies (or up to 6 months after), so he wouldn't owe anything in taxes if he simply sold it for what it was worth at the time of her death.

Either way, a probate lawyer will almost certainly be needed.

That's a very good point. There will be a step up in cost basis when she dies but if your father in law improves it and that increases the value he might be subject to a short term capital gain on that improvement which could potentially wipe out all the profits of doing the work in the first place.

Not sure if this would be some form of fraud, or if it would even make sense from a cost standpoint, but I wonder if it would be beneficial to do the renovations now, then get the home appraised for the cost basis step up at the time of her death.

I read the OP wrong. I thought it said she had been taken to a nursing home.

Good point. Thankfully, since they have been taking care of her for a while and taking her to all the appointments, they have been working with the attorney that has all her documents. (They also have power of attorney and all other legal guardian documents for her.)

I don't think they are necessarily in a rush to get this done, just wanted to make sure they didn't do anything that would add extra expenses. Or if there were some things they could do that would lessen their tax implications.

They made the call a year or so ago when she first told them they would be getting the house they wouldn't touch it until she passes. But I do understand the perspective.

Given her current condition, she elected to come home on hospice care instead of stay at the hospital / nursing home. She will have 24/7 assistance and it makes it much easier for my in-laws to help as they are next door and don't have to deal with COVID protocols that are in place in hospitals and nursing homes. (Neighbor and In-Laws are all vaccinated.)

It would still be a good idea to find out what the backlog looks like. The lawyers power of attorney ends the moment she dies and your FIL doesn't become the executor until the court says so. There could potentially be a 3 month gap where the estate is locked down. Hopefully some of her accounts have TOD or your FIL has some money bridge the gap between the time of death and the court date to pay for the upkeep on the house.

This is not complicated... And it isn't a sizeable inheritance (assuming this isn't some $10mm mansion).

So each party will inherit quarter million with your in laws getting an extra bump for whatever value the house is. So no tax on inheritance and gains are all wiped away with step up. If qualified money is involved (IRA, etc) then reach person will pay taxes as they withdraw it over the next 10 years.

Only thing I'll say is sounds like they are doing the lottery winner mistake... Coming in to a sum of kl money that feels huge to them because they don't have much (assumption here, correct me if they already have accumulated wealth). So they are going to go spend it on something they may or may not be able to afford once the money is spent.

So, to answer your question, sit down with an advisor (probably fee only as it sounds like they want to spend rather than invest what they have). Stepped up basis eliminates the tax concerns. Renovations done intelligently should increase value more than cost basis increase, so will have tax ramifications down the road (potentially ordinary income), so hopefully that effort actually yields more money than him doing a job for a paying customer vs selling as is.

Thanks for the info. Glad to know this is fairly common...it's just new territory for them (and myself).

They aren't looking to take the money and spend it all, just want to make sure they do things properly to avoid any excess taxes.