Can inherited disbursements of assets less than 5,000 be taxed on the beneficiary's individual tax return?

Question

My father in law's estate was less than 18,000 dollars and three of his children received equal disbursements of less than 5,000 after expenses were paid.

Answer 1

That estate was too small to have any Estate Tax liability so it would not have paid any Estate Tax. The beneficiaries never pay taxes on the division of the assets from an estate, except for IRAs. Those are taxed when the beneficiary withdraws the funds from them just the same as the bequestor would have had he survived.

Answer 2

Inheritances other than IRA's are not taxable income. The executor should still prepare a Form 1041 showing any estate income after death less expenses like attorney fees. The excess deduction on Schedule K-1 can be deducted by each child if they itemize deductions.