What are the tax liabilities to California of an inheritance beneficiary? 5 Answers as of July 24, 2013

I need to know how many professionals and what special designations I really should look for to help me administer my mother's trust. Are there specific types of CPA's or Attorneys that I should look for, or can any accountant or lawyer do the job? I'm also reading what I can and getting very different answers regarding the tax issue for here in California. Here's my specific question: if a house is inherited and sold as part of a trust to be divided three ways, even if the house is worth less than one million dollars, are there still taxes owed by each of the three inheritors once they receive their distribution? I've been told by a guy I know that he had to pay income tax on his California inheritance after the home was sold because once the money was received, he became a "beneficiary" and owed income tax, even though there was no specific inheritance tax. So from the point a less than $1,000,000 property first goes into trust until the final distribution of it's assets, what and how many taxes are required and at what percentages for not only an "estate" in California but also for it's "beneficiaries"? (I'm trying to cover all the potential bases...)

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Law Offices of Frances Headley | Frances Headley
In California inheritance taxes follow the federal model and unless you have a large estate there are no inheritance taxes.? I suggest that you consult a CPA who does estates for the complete run down on the possible tax consequences of holding or selling the property.
Answer Applies to: California
Replied: 7/24/2013
Law Office Of Victor Waid
Law Office Of Victor Waid | Victor Waid
As the trustee of a trust, with significant value, you are strongly urged to obtain the assistance of an estate planning attorney who is very familiar with trust administration. The attorney should be able to refer you to an accountant who specializes in the tax consequences and required filings with the tax authorities. As trustee, to perform trust administration on your own, leaves you significantly exposed to liability suits from beneficiaries, where the assets are of significant value, if you make a mistake in the administration of the trust. the old saying still applies: "An ounce of prevention is worth a pound of cure".
Answer Applies to: California
Replied: 7/19/2013
Danville Law Group | Scott Jordan
You should be looking to hire a Probate Attorney, attorney will then steer you to a CPA if taxes are due on the estate. From your description, I don't believe the estate will owe any taxes. California does not have an inheritance tax so that is not an issue. The federal government only taxes estates worth more than $5 million dollars. Trust administration is tricky and requires a lot of paperwork that most people are not familiar with. Attorneys will either charge a percentage of the estate a flat rate fee so there are not surprises.
Answer Applies to: California
Replied: 7/19/2013
Neal M. Rimer, Esquire
Neal M. Rimer, Esquire | Neal M. Rimer
There are no "inheritance" taxes in California. There may or may not be Federal Estate Tax due, depending on the size of the estate. Income taxes are another issue. The Estate will file an IRS form 1041. There may be gains or losses from a sale of a residence. It depends on the value as of the date of death as compared to the net proceeds from the sale of the house. If there is a tax liability, it is possible to pass those gains onto the beneficiaries, if there is a distribution within the tax year, through "distributable net income" as shown on the tax return. Overall, if there are gains, it might be less costly for all concerned to pass through those gains to all the beneficiaries rather than have the Estate pay the income tax due. Yes, you need to retain an attorney to represent you, if you are administering an estate. You will need legal advice on what you responsibilities are along with choices of decisions along the way as well as tax advice on those choices. Estates can have a calendar year or a fiscal year. Again, many choices along the way. Sometimes you are able to plan how things will take place and match income and expenses incurred to reduce the tax burden other times, circumstances dictate other effects. Planning is the key to minimizing taxes and expenses and sometimes timing is everything.
Answer Applies to: California
Replied: 7/19/2013
James Law Group
James Law Group | Christine James
Your friend is incorrect and you should probably start interviewing attorneys to find one that gives you the answers that you feel comfortable with and that you think will be responsive to you and easy to work with. There is no inheritance tax in CA and the federal estate tax exception is $5M, not $1M. Inheritance is not income and taxes on the inheritance will not be due. A fiduciary tax return will be due and a K-1 will be distributed to the beneficiaries, but no tax will be due. Do keep in mind however, CA withholds 3% from all real estate transactions, some of which will likely be returned when the fiduciary tax return is filed.
Answer Applies to: California
Replied: 7/19/2013
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