[S33334Q]

In California is there inheritance tax (State or Federal) on savings bonds left to grandchildren or Roth Ira funds left to the children directly and outside of the Living Trust? Is the tax rate higher to the grandchildren than it would be if the bonds were left to the children? Is the tax paid out of their inheritance or does it have to be paid out of the estate or trust with no consequence to the inherited bonds or Roth Ira?

[AtlantaTaxExpert]

I do not believe there is an inheritance tax in California. A check of the Franchise Tax Board's website should confirm or deny that fact.

There IS a California estate tax, but it does not kick in until the estate's assets exceed the federal limit, which is currently about $2 MILLION. If estate taxes are due, the estate pays them before any assets are distributed to the heir.

[ebaines]

And just to add something - it doesn't matter whether the estate's assets are inside a living trust or not - all the deceased's assets are counted in determining the amount of estate tax owed. CA does not have an inheritance tax, but if estate taxes are due they are paid out of the assets of the estate before the remaining assets are distributed to the heirs. It would be up to the executor to figure out how to raise the cash to pay the taxes. In general the executor would sell assets that are not titled as "payable on death" or that don't have someone namd as joint tenant with right of survivorship, as these should pass whole to the named party. So the executor would have to raise cash to pay taxes or other bills by selling other assets in the estate - he could sell stocks, or use cash from the checking or savings accounts, or sell real estate , cars, or personal property. Again, it doesn't matter if these assets are inside a living trust or not.