Allison Alley
ABOUT Allison

Since 2003 Allison Alley has been committed to working with clients to help them achieve their retirement, estate, investment, and tax planning needs. Prior to joining Pure Financial Advisors, Allison served as Senior Vice President of a small private wealth management and investment banking firm where she specialized in comprehensive wealth planning to address the [...]

How will your beneficiaries be taxed when they receive an inheritance from you? In this video, Senior Financial Planner Allison Alley, CFP® outlines how different types of inherited assets are (or aren’t) taxed.


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.

Download our tax checklist for more information on taxes.