Payable on death bank accounts is taxable. Depending on the state, some of the money in the account would need to pay off inheritance or death taxes.
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.
If you are indeed designated as a beneficiary on the account, the bank will release the contents of the account to you. If you are unsure where the decedent banked, you may consider asking the decedent's family members, the executor/administrator of their estate or the trustee of their trust.
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.
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.
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.
Convenience: When you pass away, your accounts can transfer to the beneficiaries you named with minimal fuss and confusion. Avoiding probate: Typically, accounts with a beneficiary can bypass probate, meaning they won't be tied up in the long legal process to distribute your assets.
When a person passes away, their assets are distributed in accordance with either their estate plan or California's intestate succession laws. However, certain assets, including most bank accounts, can pass directly to beneficiaries, without the need for probate or the court's intervention.
To ensure that families dealing with the death of a family member have adequate time to review and restructure their accounts if necessary, the FDIC will insure the deceased owner's accounts as if he or she were still alive for six months after his or her death.
This means that when the beneficiary withdraws those monies from the accounts, the beneficiary will receive a 1099 from the company administering the plan and must report that income on their income tax return (and must pay income taxes on the sum).
While the principal amount of the CD transfers without income tax issues, any interest earned after death and before transfer will be treated as ordinary income on the tax return of the person who inherits it.
Medium inheritance ($100,000)
If you receive a larger inheritance, first consider the recommendations above—fund an emergency savings account or pay off credit cards and loans. You can also use a portion of the money to pay off all or part of your mortgage or pay down student loan debt.
Beneficiaries of an inheritance in California typically do not have to pay income taxes on the inherited assets. That is because inherited assets are generally not taxable income for individual beneficiaries.
Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received. See Topic 403 for more information about interest.
You can select a bank account beneficiary by following a few simple rules. Beneficiary designations are one of the easiest ways to transfer assets to loved ones and family members. This cost-free service will transform your accounts into a type of informal trust.
You must simply complete a beneficiary designation form for the particular account and file it with the appropriate financial institution (life insurance company or employer), and your beneficiary will be able to avoid probate and automatically gain control when you die.
If you have money in your checking account, it's considered an asset. If your account is empty or overdrawn, it's not considered an asset, but rather a liability.
"The surviving owner will be able to withdraw funds from the account," says David Doehring, probate attorney and managing partner of Doehring & Doehring Attorneys at Law. If the account has a payable on death beneficiary, the bank account balance goes to the beneficiary after the last account owner dies.
Beneficiaries of traditional bank accounts inherit the funds upon the owner's death. You can designate a beneficiary at any time by providing their personal information. Reviewing and updating your beneficiaries is a critical aspect of estate planning.
The FDIC adds together all deposits in retirement accounts listed above owned by the same person at the same insured bank and insures the total amount up to a maximum of $250,000. Beneficiaries can be named on these accounts, but that does not increase the amount of the deposit insurance coverage.
Adding a beneficiary to your accounts is one of the most important financial decisions you'll make. It ensures your assets are distributed according to your wishes and can help your loved ones avoid complicated and time-consuming legal proceedings after your passing.
Financial institutions are required to report cash deposits of more than $10,000 in compliance with the Federal Bank Secrecy Act. These reporting standards are intended to alert the government to potential crime and fraud, including money laundering and other illegal activity.
While you can't "cash" a check written to the deceased, you can deposit it into their account. Contact an estate attorney early on. They can help you understand more thoroughly what you need to do.