POD/TOD accounts goes directly to the beneficiary upon the account owner's death. If that considered a gift or inheritance to the recipient? If a state like NJ has an inheritance tax, is that transfer taxable to the recipient? I assume if it is considered a gift, it would not be taxable to the recipient?
Separately, is the POD/TOD account part of the deceased's estate for unified gift/estate tax computation?
TIA
Generally, yes.
If it's an estate tax and the transfer is taxable, it's taxable to the estate. If it's an inheritance tax it will be taxable to the heir.
There is generally no income tax to the recipient, unless the gift comes from an IRA, 401(k) or other type of qualified plan.
Normally, yes.
It is not clear to me. Is the POD considered a gift OR an inheritance?
The decedent is in a state with estate tax; and the POD recipient is in a state with an inheritance tax (e.g. NY and NJ). The recipient is not a relative of the decedent. I assume since POD transfer occurs after a person died, then the transfer is an inheritance to a NJ recipient? Then the question is: does the NJ inheritance tax apply to an inheritance coming from outside of NJ?
Ira Smilovitz, EA Leonia, NJ
If it's not paid until the death of the donor, it's an inheritance.
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