California does not have a state inheritance tax, but potential beneficiaries should be aware of a number of tax-related issues. Some assets received by intestacy or bequest may be subject to taxation despite the absence of a state inheritance tax.
No inheritance tax
Since California has no state inheritance tax, beneficiaries--those inheriting assets upon the death of another--will not generally pay the state a portion of the value of the assets received.
California repealed its state inheritance tax on June 9, 1982. Like other states, it instituted a state estate tax equivalent to the maximum federally permitted state estate tax credit. Since Congress began phasing out the federal estate tax credit program in 2001-2002, and that process has completed, state estate tax programs tracking the federal program have also been phased out. Thus, deaths occurring on or after January 1, 2005, do not trigger the need to file a California estate tax return.
Any inheritance classified as "income in respect of decedent" remains taxable as income for the beneficiary. Such inheritance is money that should have been received and paid taxes on, but was not because a person died before receiving the money. Additionally, if an estate is located outside California but the beneficiary is a California resident, the state hosting the estate may impose tax obligations on the beneficiary.
Because of the complexity of inheritance, estate and other death tax laws, some experts, like Robin L. Klomparens and Betty J. Little in the "California Tax Lawyer," argue that California ought to re-institute a state death tax credit.
Consult a Professional
As with any legal issue, consult a licensed legal professional to resolve any difficulties with California's inheritance and estate tax regime. Attorneys specializing in wills, trusts and estates can provide the most comprehensive answers to questions in the area of inheritance and estate law, including taxation questions.