The "deceased estate 3-year rule," under U.S. Internal Revenue Code §2035, brings certain assets given away by a person within three years of their death back into their taxable estate, primarily to prevent using gifts to avoid estate taxes, especially for "bad gifts" like life insurance policies or property where the decedent retained "strings" (control/benefit), even if an outright gift usually escapes inclusion. It ensures assets transferred with retained interests or control, or life insurance policies, are treated as if still part of the estate for tax calculation, though gift tax paid on such transfers is also added back.
Each state has its own set of laws governing the probate process. For example, probate in California requires a filing within 30 days of discovering the will, while in Texas, executors have up to four years to file. California: Probate should be filed within 30 days of the person's death.
As mentioned, if the inherited property was the deceased's principal residence, selling it within two years of their death can result in a full CGT exemption. This is one of the simplest and most effective ways to avoid paying CGT.
Probate is generally required in Colorado for most estates, including those with wills and intestate estates: Estates over $80,000: These estates must go through probate to distribute assets to heirs. Real estate: Real estate that is only in the name of the deceased person must go through probate.
Instead, the executor of an estate can file for informal probate, which requires limited court supervision. Informal probate in Colorado typically takes six months to a year, depending on how quickly debts and assets are settled.
Assets exempt from probate typically include those with named beneficiaries (life insurance, retirement accounts), jointly owned property with rights of survivorship, assets held in a living trust, and sometimes specific items like homestead property or a certain value of vehicles/household goods, depending on state law, allowing direct transfer to heirs without court involvement.
The 7 year rule
No tax is due on any gifts you give if you live for 7 years after giving them - unless the gift is part of a trust. This is known as the 7 year rule.
Typically, when you inherit an asset, capital gains tax will not apply. However, when you sell an asset that you have inherited, CGT may become relevant to any money you make from the sale of the asset.
Most estates are finalised within 9 to 12 months, and it may take longer if: there are complex issues. the Will is contested.
When Is Probate “Over”?/When Can the Estate Be Closed? An estate may be settled any time after 6 months from the grant of letters testamentary or letters of administration if all the debts are paid. “Settling” the estate means paying any leftover assets to the appropriate beneficiaries or heirs.
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. It's a progressive tax, just like the federal income tax system. This means that the larger the estate, the higher the tax rate it is subject to.
2. Changes to Gifting & Inheritance Rules. Annual Gift Tax Exemption Increase: You can now gift up to $19,000 per person per year without triggering taxes. A married couple can give $38,000 to each child or grandchild tax-free.
Charity exemption
Like the spousal exemption, assets passing to charity on death are exempt from inheritance tax. As such, if an entire estate passes to charity, there will be no inheritance tax due.
You can typically inherit a very large amount from your parents before hitting federal estate tax thresholds, which are around $15 million per individual in 2026, meaning most heirs receive tax-free inheritances because estates rarely exceed this limit; however, some states have their own estate or inheritance taxes, and income from inherited assets (like IRAs or rental income) is usually taxable, according to this U.S. Bank article, this Fidelity article, this Domain Money article, and this Tax Foundation article.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government.
A Pay on Death (POD), aka Transfer on Death (TOD) and Totten Trust, allows the account owner to designate a specific beneficiary who will receive the funds in the account upon their death, bypassing the probate process.
Want to make your assets virtually untouchable by creditors and lawsuits? Equity stripping may be the answer. This advanced technique involves encumbering your assets with liens or mortgages held by friendly creditors, such as an LLC or trust you control.