What is the Inheritance Tax?

In California, the Inheritance Tax is a tax applied to the transfer of assets from the estate of a deceased person to their beneficiaries. It is payable by the heirs and not by the estate of the deceased. This tax is limited to those individuals who pass away after January 1, 2005. The Inheritance Tax rate is based on the relationship of the beneficiaries to the deceased. Generally, the rate is 15% if the beneficiary is a direct heir or full-sibling, 5% if the beneficiary is a grandchild, niece, or nephew, 2.5% if the beneficiary is a great-grandchild, and 0% for all other beneficiaries. The Inheritance Tax does not cover all assets. For example, the first $175,000 of non-cash assets is exempt from the Tax. Furthermore, assets received through a trust, such as a living trust or a 529 college savings plan, are also excluded. In California, life insurance proceeds, annuities, and retirement accounts are also exempt from the Inheritance Tax. These assets can be transferred to a beneficiary free of Inheritance Tax as long as an individual names a beneficiary at the time of their death. In cases where the Inheritance Tax does apply, the beneficiary responsible for paying the tax must file an Inheritance Tax Return with the California Franchise Tax Board. Payments must be made in order to release assets from the estate. Therefore, it is important for heirs to understand the Inheritance Tax law when dealing with the estate of a deceased loved one.

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What is the Inheritance Tax?

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