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.
Generally, beneficiaries do not pay income tax on money or property that they inherit, but there are exceptions for retirement accounts, life insurance proceeds, and savings bond interest. Money inherited from a 401(k), 403(b), or IRA is taxable if that money was tax deductible when it was contributed.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
In general, file and prepare the final individual income tax return of a deceased person the same way you would if the person were alive. Report all income up to the date of death and claim all eligible credits and deductions.
While some debts disappear after the debtor dies, that's not true of tax debts. That debt is now owed to the IRS by the deceased's estate, and the IRS will attach a lien to it for the amount owed. If the estate includes property, like a home, the lien may include that property.
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.
Strategies to transfer wealth without a heavy tax burden include creating an irrevocable trust, engaging in annual gifting, forming a family limited partnership, or forming a generation-skipping transfer trust.
In California, there is no state-level estate or inheritance tax. If you are a California resident, you do not need to worry about paying an inheritance tax on the money you inherit from a deceased individual. As of 2023, only six states require an inheritance tax on people who inherit money.
Many states assess an inheritance tax. That means that you, as the beneficiary, will have to pay taxes when you receive an inheritance. How much you'll be assessed depends on the state you live in, the size of your inheritance, the types of assets included, and your relationship with the deceased.
There is no federal tax for beneficiaries of POD accounts. There will be an inheritance tax, or death tax, depending on the state, that will need to be settled before any money can leave the account. If the deceased has any debt that has not been settled, the money in the account must go to paying that off first.
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, ...
Some states have inheritance taxes, but California is not one. However, it's essential to be aware that even though there is no inheritance tax in California, there may still be federal estate tax to consider. The federal estate tax is a tax on the transfer of an estate after death.
Money is not an appropriate gift, although exceptions may be made when the family is left in extreme financial difficulty. In that case, friends may wish to pool contributions to make a gift of assistance. The Funeral Service.
While state laws differ for inheritance taxes, an inheritance must exceed a certain threshold to be considered taxable. For federal estate taxes as of 2024, if the total estate is under $13.61 million for an individual or $27.22 million for a married couple, there's no need to worry about estate taxes.
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.
This is known as your 'annual exemption'. You can give gifts or money up to £3,000 to one person or split the £3,000 between several people. You can carry any unused annual exemption forward to the next tax year - but only for one tax year. The tax year runs from 6 April to 5 April the following year.
Annual gift tax exclusion
The gift tax limit is $18,000 in 2024 and $19,000 in 2025. Note that this annual exclusion is per gift recipient. So, you could give away the limit to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance.
Immediately after receiving an inheritance, you should notify your local Social Security office.
Following the death of a worker beneficiary or other insured worker,1 Social Security makes a lump-sum death benefit payment of $255 to the eligible surviving spouse or, if there is no spouse, to eligible surviving dependent children.
An executor/administrator of an estate can only withdraw money from a deceased person's bank account if the account does not have a designated beneficiary or joint owner and is not being disposed of by the deceased person's trust.
Getting a legal pronouncement of death.
If someone dies while not in medical or hospice care, call 911. When paramedics arrive, they will generally start resuscitation. If the person has a “do not resuscitate order,” present that to the paramedics when they arrive.