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My son inherited money after his father was killed in an accident. A woman has come forward with another legal heir. Are we obliged to give him money?

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Dear Moneyist,

My ex-boyfriend was killed in an accident. With him being unmarried and my child being his only surviving child, he was awarded a large sum of money in the subsequent lawsuit. As he was 10 at the time, I set up an annuity to be dispersed between the age of 18 and 35. He also will accrue a hefty amount of interest because of this.

Two years after the settlement (4 years after the accident) my lawyer received a letter stating there was another child, whose mother wanted him to be included in the settlement. We never knew of this other child because the relationship ended badly between them, and the mother told my ex he was not the father and never allowed him to see the child. She named the child after another man.

She knew about the death, but did not come to the funeral or send the child. As it turns out, she knew about the lawsuit ahead of time and was instructed to wait until it was over and swoop in. She went on to prove paternity through a test with the grandfather. After exhausting all efforts, and suing me personally she is left with no legal avenues. She has now asked if the two can have a relationship.

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My child is still a minor and her child is now 20. I feel like it wouldn’t be that appropriate considering the bad blood between us and the two children never meeting (they have never spoken over the phone and they have never seen each other in person). She has also asked if we could give the other child ‘something’ from the settlement.

The timing is also suspicious to me because my child will turn 18 this year and will start receiving money from the annuity. But the annuity is set up so that my child does not get a lot of money early on, and if It is broken to give them a piece, it will cost almost $500,000 in interest. I know he can probably start up another one, but I doubt the interest will be the same.

My son has said that he doesn’t want a relationship, and does not want to give the other son anything from the settlement. He feels he has other siblings (my other children) that he could help before (in his words) “a stranger.” I feel like both young men are suffering. I don’t know what I should do. I want my child’s future secured, but I also think the other child should get something.

I feel like this mom should have secured her child’s future like I did with mine. Do I have a moral obligation to encourage my son to have a relationship with him or to give him any money?

A Mother Who Doesn’t Always Know Best

Want to read more?Follow Quentin Fottrell on Twitterand read more of his columns here.

Dear Mother,

No. Your duty is to protect your son. This woman’s duty was to do right by her son, and her son’s father. She lied about his paternity when your ex-partner was alive, and she waited until the lawsuit was settled before coming forward to sue you for a share of the money she believed rightfully belonged to her son. They were two big mistakes on her part. The statute of limitations on the case has expired, and she has created enough turmoil for you and your son.

Her final avenue is to try emotional blackmail. Your son has made it clear that he wants to keep the settlement, and he does not wish to have a relationship with her son. Also, he rightly suspects that this boy’s motives and those of his mother are not pure. By developing a relationship with you and your family, this woman appears is endeavoring to involve herself in your life, not with a lawsuit but with a guilt trip and a smile. You are not responsible for her son. You have endured enough.

It’s time to move on with your lives. Tell this woman the truth. Wish her well, stop replying to her emails, letters, calls or text messages, and move on.

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Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas.

Quentin Fottrell is MarketWatch’s Moneyist columnist. You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. By emailing your questions, you agree to having them published anonymously on MarketWatch.





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These money and investing tips can help you stay upright against the market’s headwinds

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you greater knowledge about the financial markets’ current condition as you monitor your portfolio and plan ahead. Plus, check out several short videos about whether to include bitcoin and other cryptocurrency in your portfolio and how to go about it if you do.

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Opinion: I took advantage of the 2020 RMD rule but now my 1099-R looks wrong — what should I do?

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Q: I took advantage of the 2020 RMD rule and returned what I had taken from my IRA thinking there would be no taxes. I just got a 1099-R showing the full RMD. That can’t be right. How do I correct it?

—Pauline

A.: Pauline,

If the 1099-R is incorrect, you will need to contact the firm that issued the statement to get it corrected. However, the 1099-R is probably correct.

Read: Are there new RMD rules this year?

Under the law, the firm issuing the 1099-R has no responsibility for reporting how much of a distribution is taxable. That responsibility rests on your shoulders as a taxpayer. The issuing firm need only report what was paid out of the IRA on 1099-R.

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That does not mean you will pay any tax. Any funds returned to the IRA by Aug. 31, 2020 is considered a rollover and is not taxable. Normally, Required Minimum Distributions (RMD) are not eligible for rollover, but IRS guidance after enactment of the CARES Act that waived RMD for 2020 changed that. The guidance stated the normal 60-day time limit for rollovers would not apply and instead instituted a fixed deadline of Aug. 31, 2020 to return such distributions and avoid taxation.

Read: It’s not too late to save on your 2020 tax bill — here’s how

I get similar questions about 1099-Rs every year. The reporting of the gross distribution looks like an error but in most cases, it is correct and the person receiving it simply hasn’t learned how it is accounted for yet.

Here’s how the accounting typically works.

As with any gross amount reported on Form 1099-R, you declare the amount that is not taxable when you file your 2020 tax return. What I hear most tax preparers would do in your situation is put the gross distribution amount from 1099-R on line 4a as per the normal procedure. Then, they would place a zero in 4b of your Form 1040, and put a note on the return near those lines that it was “returned to the IRA under the CARES Act,” “CARES Act rollover,” “CARES Act,” or simply “Rollover.”

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If you did not return all of distribution by the deadline, the portion that was not returned would be taxable. You would put that number on line 4b.

Read: 5 things to do if you inherit a Roth IRA

As I mentioned a moment ago, the discrepancy between the gross distribution reported and what should actually be taxable comes up in other situations. Three of the most common are other rollovers, Qualified Charitable Distributions (QCD), and distributions from accounts that had received after-tax contributions.

In all those cases, the reporting process looks like what I described above. You put the gross distribution on line 4a and the taxable portion on Line 4b. Then note why the numbers are different with “rollover,” “QCD,” or “See Form 8606” on the 1040. Form 8606 is the form used to determine the taxable amount of an IRA distribution when nondeductible contributions have been made to any of one’s IRA accounts.

If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.

Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.



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Video: Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

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Galaxy Digital’s Mike Novogratz explains the outlook for crypto as Coinbase goes public.





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