In most cases, an inheritance isn't subject to income taxes. The assets passed on in an investment or bank account aren't considered taxable income, nor is life insurance. However, you could pay income taxes on the assets in pre-tax accounts.
Since a transfer on death account is not a trust, it is part of the decedent's estate. It does not avoid or minimize estate taxes.
A beneficiary designation or joint title can override your will. Inattention to beneficiary designations and jointly titled assets can quickly unravel your estate plan. Suppose, for example, that your will provides for all of your property to be divided equally among your three children.
The key purpose of a beneficiary deed is to transfer real estate to your heir in the future, and not in the present moment. The secondary (and also key) purpose is to keep your property outside of probate. If you simply leave your property to your heir in a Will, then that property will be subject to probate.
Unless you have a complex situation or have specific concerns, you likely won't need a lawyer to create a TOD deed. But you will need to make sure that the TOD deed you make is valid in your state, since each state's rules are a little different.
The most direct way to minimize inheritance tax is to start gifting your heirs money each year while you're still alive. Taking advantage of the gift tax exclusion of $17,000 per year per person is a quick way to transfer non-taxable cash or assets to heirs.
California Inheritance Tax and Gift Tax
Like the majority of states, there is no inheritance tax in California. If you are getting money from a relative who lived in another state, though, make sure you check out that state's laws. They may apply to you and your inheritance.
Making a will to distribute your assets
Whether leaving assets to a spouse or civil partner, distributing assets to take advantage of tax-free allowances, or making gifts to charity, a valid will could help you to reduce or avoid Inheritance Tax altogether.
A beneficiary deed can name one or multiple beneficiaries, and can be given by one owner or multiple owners. If there are multiple owners, all of them must sign the beneficiary deed in order to transfer the entire ownership of the property.
Warranty deed. Warranty deeds are the safer option when buying property versus simply transferring ownership. Most buyers will want this option. If it is discovered that the seller did not have complete ownership of the property, the buyer can sue for breach of warranty.
Estranged relatives or former spouses – Family relationships can be complicated, so think carefully if an estranged relative or ex-spouse really aligns with your wishes. Pets – Pets can't legally own property, so naming them directly as beneficiaries is problematic.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
When a house is transferred via inheritance, the value of the house is stepped up to its fair market value at the time it was transferred, according to the IRS. This means that a home purchased many years ago is valued at current market value for capital gains.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Beneficiaries of an inheritance in California typically do not have to pay income taxes on the inherited assets.
The states with no state estate tax as of mid-2023, are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, ...
Upon selling an inherited asset, if the inherited property produces a gain, you must report it as income on your federal income tax return as a beneficiary.
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
Inherited properties can come with financial responsibilities such as existing mortgages, unpaid property taxes, maintenance costs, and insurance requirements. Be aware of hidden costs, including emergency repairs, property management fees, and legal expenses.
A beneficiary deed is a simple yet powerful tool for estate planning that allows property owners to transfer real estate directly to a beneficiary upon their death, bypassing the often lengthy and costly probate process.
How long do you have to transfer property after death in California. In California, the law requires a 40-day waiting period after an individual's death before initiating property transfer. For detailed guidance, refer to California Probate Code sections 13100-13115.
Deed of Release or Deed of Amendment
A Deed of Release also demonstrates the intention of a relinquishing beneficiary to be irrevocably removed as a beneficiary of a trust. The irrevocability of the Deed of Release is intended to ensure the removal is permanent.