I have addressed this in prior blog posts but it bears revisiting this topic since this comes up frequently in my meetings with clients. The question is typically asked this way: “Will my heirs have to pay taxes on the inheritance I leave them?” or something similar.
Let me start off by saying that it doesn’t matter if we are talking about a will or a trust. While the administration may vary, the tax treatments are very similar (where they vary is a topic for another post).
The short answer to the tax on inheritance question is No. Your heirs or beneficiary’s inheritance is not taxable in the State of Arizona. Other than a couple of assumptions discussed below, there isn’t a death or inheritance tax in Arizona. The money or assets you leave your heirs is not treated as income nor included on their tax returns in the year they inherit it. It is typically tax-free. They don’t ever report it.
This general rule has a couple of assumptions:
1. We are not talking about pre-tax assets like retirement accounts (IRAs etc). If the client has money in a retirement account that hasn’t been taxed, your beneficiaries of these accounts will have to pay tax as they withdraw.
2. There is a federal estate tax. However this year the tax only kicks in when your estate exceeds 11 million dollars. Fortunately or unfortunately that will affect very few of us.
Make a Payment
