How Does the Inheritance Tax Work?

How will your beneficiaries be taxed when they receive an inheritance from you? In this video, Senior Financial Planner Allison Alley, CFP® from Pure Financial Advisors outlines how different types of inherited assets are (or aren't) taxed. Transcript: We recently got a question regarding how does the inheritance tax work. Well, there's a few different things that go into it. Three different taxes could come into play: ordinary income taxes, capital gains taxes, and then estate taxes. When it comes to ordinary income taxes, the accounts that could be inherited that might be subject to those would be retirement accounts. So if you inherit an IRA or a 401(k), once you start taking distributions from those accounts, you will be subject to ordinary income taxes on those withdrawals. Other accounts - anything not inside a retirement account, whether that's real estate, individual stocks and bonds, and mutual funds, etc. - there's really no tax when you inherit those things. And in fact, the estate of the person that passed gets what's called a step-up in basis. So if you inherit something and when the person passed it is worth about $100,000, if you then sell it for that same amount, you're not going to pay any taxes on that. The last tax that comes into play is the estate tax. And frankly, under the new tax laws, most people aren't really going to have to worry about it. They've increased everybody's lifetime exclusion to $11 million. So what that means is that unless your estate is above $11 million, and if you're married it can be all the way up to $22 million, what passes through to your beneficiaries is actually not going to be subject to any taxes at all. So I hope that information helps. If you need additional information check us out at PureFinancial.com. If you would like to schedule a free assessment with one of our CFP® professionals, click here: Make sure to subscribe to our channel for more helpful tips and stay tuned for the next episode of “Your Money, Your Wealth.” Channels & show times: IMPORTANT DISCLOSURES: • Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, Inc. A Registered Investment Advisor. • Pure Financial Advisors Inc. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations. • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. • Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. • All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. • Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors. Ask Pure...(read more)

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