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Beneficiary Tax on Inheritance

A lot of people in California are confused by the issue of taxes on inheritance. Generally speaking, anything that you receive as an inheritance is not subject to tax. It’s not subject to income tax.  It’s not subject to capital gains tax. It’s tax free money.

There is an exception for estate tax – and that can be a little confusing. Under the current tax rules, you have to have an estate in excess of $11 million per person before you’re going to be subject to estate tax. The estate tax is paid by the estate. It’s not paid by you, the beneficiary.

Does California Have a State Level Inheritance Tax?

When you receive your inheritance, there really isn’t any income tax on it. Of course, this applies to California. In California, we do not have a state level inheritance tax. There really is no tax that would be chargeable to you as a beneficiary for receiving an inheritance.

That’s not true in every state. Some states have a state-level inheritance tax requiring that you have to pay a tax on what you receive as an inheritance.  That’s not the case in California.

Income Tax on Trusts that Generate Income

There still might be some tax issues dealing with your trust.  For example, if the trust itself has generated income, after the decedent passed away. Maybe, he or she had commercial property that generated rents and income.  That is going to be taxable.  A lot of times, that income tax is passed through to the beneficiaries.  But that’s only a tax on the income that was received after the decedent died.  It’s not a tax on the whole amount.

You can inherit $3 million, $4 million or $5 million dollars in California, and you’re not going to pay any tax on the inherited money.  You only will owe tax on any income that was generated off that money after the decedent passed away.