Inheritance Financial Decision Modeling

How this engine works

You enter your own figures; the engine models two scenarios side by side and shows the twelve-month difference between them. The outputs are estimates built from your inputs and documented assumptions — not predictions, and not advice. Mood and stress are self-reported context that adjust the wording of the summary, nothing else. Inputs are processed in your browser. The full methodology, including what the engine does not claim, is on the Decision Center.

Step 2: Decision Forge — compare assumptions

Decision scenarios with reflection prompts

Each scenario in the tool above presents two options drawn from this event and models them side by side from the figures you entered. Before the comparison, the page names a cognitive-bias concept as an educational reflection prompt. It is a general prompt attached to the scenario rather than a finding about you: the page does not test whether the concept applies to your situation, and it does not indicate which option you should choose.

Self-reported context at decision time

The page does not create a psychological profile. Mood and stress may tailor wording and general next-step suggestions. They do not change the entered financial values or scenario math. They do not establish decision readiness. The named bias concept is a general reflection prompt; the page does not detect bias, assess decision capacity, diagnose a condition, or predict outcomes.

The four dates that govern an inherited account

An inherited account is governed by dates more than by choices. Three of the four below are counted from the date of death. The fourth is not a window at all — it is the absence of one, and it is the part most people assume works the other way.

There is no federal inheritance tax

Two different taxes get called the same thing, and the distinction decides who pays.

An estate tax is levied on the estate, before anything is distributed. The federal government has one. An inheritance tax is levied on the person who receives, and varies by how closely related they were. The federal government does not have one. If you are told you will owe federal tax on an inheritance simply for receiving it, that is wrong.

Inheritance taxes exist only at state level, in five states: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Iowa is frequently listed as a sixth and should not be — its inheritance tax does not apply to deaths on or after 1 January 2025. A separate group of about a dozen states plus the District of Columbia levy their own estate tax, with thresholds far below the federal one. New Jersey repealed its estate tax but kept its inheritance tax, and Maryland is the only state with both. State lists change; check the state’s own revenue department rather than a summary.

The federal estate tax, and the sunset that was repealed

For 2026 the basic exclusion amount is $15,000,000 per person, with a top rate of 40 percent above it. A vast quantity of material written in 2024 and 2025 warns that this figure falls to roughly $7 million in 2026. That reversion was repealed, not postponed — the temporary provision was struck and the higher amount is now the permanent base, indexed going forward.

This matters beyond a corrected number, because the sunset narrative drove people toward irreversible gifting to beat a deadline that no longer exists.

Portability — carrying a deceased spouse’s unused exclusion to the survivor — is elected on a timely filed estate tax return, due nine months after death with a six-month extension available. Where the estate had no filing requirement at all, simplified relief allows the election up to the fifth anniversary of the death, extended from two years in July 2022. This is the deadline most often missed, because an estate far below the threshold has no other reason to file.

What is taxable to you, and what is not

“Anything you inherit is tax-free” is true of some things and expensively false of others.

Where federal estate tax was actually paid on income in respect of a decedent, a deduction exists to prevent the same money being taxed twice. It is easy to miss and worth asking about.

Basis, and the election with a condition on it

Inherited property generally takes a new basis equal to fair market value at the date of death, which erases the gain accumulated during the person’s lifetime. An alternate valuation date six months after death may be elected instead — but only if it reduces both the gross estate and the federal estate tax liability. It is not a free choice between two numbers.

In a community property state, the entire community property takes a new basis, including the surviving spouse’s own half, so the whole asset is stepped up rather than half of it. The nine are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. A few other states offer opt-in community property regimes, which are a different thing.

Inherited retirement accounts: one date decides everything

A surviving spouse has options nobody else has — treat the account as their own, roll it over, or remain a beneficiary — and is not forced into the ten-year rule.

For a non-spouse beneficiary the ten-year rule applies, and final regulations in force since 2025 settled the question that had been open for years. It turns on whether the owner had reached their required beginning date.

The transitional relief that waived this for several years has ended. The penalty for missing a required distribution is 25 percent of the amount that should have come out, reduced to 10 percent if corrected within two years — not the 50 percent figure that still appears widely.

A separate group of eligible designated beneficiaries escapes the ten-year rule entirely and may use life expectancy instead: a surviving spouse, a minor child of the deceased, someone disabled or chronically ill, and anyone not more than ten years younger than the deceased. That last category catches a great many siblings and is routinely overlooked.

The first year, in order

1. Do nothing irreversible for a while. There is no deadline that requires liquidating an inherited asset quickly, and decisions made in the first weeks are made by someone who is grieving.
2. Find out what kind of account each asset is before moving anything. A transfer done the wrong way can turn a tax-free inheritance into a taxable distribution in a single instruction.
3. Retitle inherited retirement accounts correctly — as an inherited IRA in the deceased’s name for your benefit, not into your own IRA, unless you are a spouse choosing that route deliberately.
4. Watch the nine-month estate tax return deadline even if no tax is due, because portability lives there.
5. Get the date-of-death valuations documented while they are easy to obtain. Basis you cannot evidence is basis you may not get.