Quick Answer: Before you do anything else with inherited money, figure out what you actually owe in taxes (usually less than people expect, since California has no inheritance tax and inherited assets get a “stepped-up” cost basis), check whether you inherited a retirement account (which comes with a 10-year distribution deadline), and hold off on big purchases until the estate has actually closed and the money is really yours.
Figure Out What You Actually Owe in Taxes First
California doesn’t have a state inheritance tax or a state estate tax, and hasn’t since 1982. At the federal level, only estates worth more than $15 million for an individual (or $30 million for a married couple) in 2026 owe federal estate tax, so the vast majority of inheritances trigger nothing at the federal level either.
Most inherited assets, like stocks, a house, or other property, also get a “stepped-up” cost basis. That means if you sell the asset, your taxable gain is calculated from its value on the date your parent died, not what they originally paid for it decades earlier. This is the single biggest reason inheriting an appreciated asset is usually far less costly, tax-wise, than most people assume.
Where taxes do come into play: any income the inherited money generates after you receive it (interest, dividends, rental income) is taxable to you going forward, and inherited retirement accounts have their own separate rules.
If You Inherited a Retirement Account, the Clock Is Ticking
An inherited IRA or 401(k) doesn’t work like inherited cash or property. Under the IRS rules implementing the SECURE Act’s 10-year rule, most non-spouse beneficiaries must fully empty the account within 10 years of the original owner’s death.
Whether you also need to take annual required minimum distributions during years one through nine depends on one detail: had the original account owner already reached their own required beginning date for RMDs before they died? If not, you can wait and take everything in year 10 if you want. If they had already started RMDs, you generally need to keep taking annual distributions in years one through nine on top of emptying the account by year 10. Missing a required distribution can trigger a 25% excise tax on the shortfall, so this is worth confirming with the account custodian or a tax professional rather than guessing.
Spouses and a narrow category of “eligible designated beneficiaries” (certain minor children, disabled or chronically ill beneficiaries, and beneficiaries less than 10 years younger than the original owner) can still stretch distributions over their own life expectancy instead of the 10-year rule.
If You Inherited the Family Home, Prop 19 Changes the Math
Inheriting a house in California isn’t just about who holds the title now. Since Proposition 19 took effect in February 2021, a child who inherits a parent’s primary residence only keeps the parent’s low property-tax base if they move into the home as their own primary residence within one year of the transfer, and even then, the exclusion is capped: reassessment is avoided only up to the parent’s original taxable value plus roughly $1 million (the exact adjustment factor updates every few years). If you don’t move in, or the home’s value exceeds the cap, expect a property tax reassessment to current market value, which can meaningfully raise the annual bill on a home that’s been in the family for decades.
Don’t Make Big Moves Until the Estate Actually Closes
It’s tempting to start planning around inherited money the moment you learn what’s coming to you, but a probate estate isn’t final until the court closes it, and disbursements can still be delayed by creditor claims, tax filings, or disputes among heirs. Build in a buffer before committing to a mortgage payoff, a big purchase, or a major investment shift: confirm the actual distribution amount and timing with the estate’s executor or administrator first.
Need Cash Before the Estate Closes?
California probate commonly takes 9 to 18 months to close, and that’s assuming nothing is contested. If you already know roughly what you’re inheriting but need funds sooner, ProbateLend offers a probate advance that gives qualifying heirs a portion of their expected inheritance now, without waiting for the estate to formally close. There’s no credit check and no monthly payments; repayment comes out of the estate at final distribution.
Frequently Asked Questions
Do I have to pay taxes on money I inherit in California?
Generally no state inheritance or estate tax applies in California. Federal estate tax only affects estates above $15 million (individual) or $30 million (married couple) in 2026, and any income the inherited assets generate after you receive them is taxable going forward.
What does “stepped-up basis” actually mean for me?
It means the IRS treats the asset’s value on the date of death as your new cost basis. If you inherit stock originally bought for $10,000 that’s worth $50,000 when your parent dies, and you sell it soon after for $52,000, you’re only taxed on the $2,000 gain, not the full $42,000 increase since the original purchase.
Can I just leave money in an inherited IRA indefinitely?
No, for most non-spouse beneficiaries. The SECURE Act’s 10-year rule requires the account to be fully distributed by the end of the 10th year after death, with annual RMDs potentially required in years one through nine depending on the original owner’s RMD status at death.
Does inheriting a house automatically mean higher property taxes?
Not automatically, but it’s common. Under Proposition 19, you keep the parent’s lower assessed value only if the home was their primary residence, you move in within one year, and the value falls within the exclusion cap. Otherwise, expect reassessment to current market value.
Is it better to get financial advice before or after probate closes?
Before, if possible. A financial planner or tax professional can help you understand what you’re actually receiving, flag retirement-account deadlines you might miss, and help you plan around Prop 19’s one-year window if a home is involved, all of which are easier to act on before the money arrives than after.
For a deeper look at California’s estate tax rules, step-up in basis, and Prop 19 mechanics, see our complete guide to California inheritance laws. If you’re still waiting on a probate case to close, learn more about how probate advances work, or check what probate typically costs in California to set realistic expectations for what you’ll actually receive. For more on California probate and inheritance, visit ProbateLend.