beneficiary income

[elselko]

If I am named as a beneficiary in someone's investment or bank account, and that person dies, how am I taxed on the account? 

Is it considered income tax?   Is is based on the total value of the account, or on the interest earned on the account?

[tagteam]

Generally, the scenario you described would be federally tax-free in the sense that the property would be considered as "acquired from a decedent" per Section 1014.

Note that any interest earned after death would be taxable to the beneficiary.

[BettieG]

When you inherit an investment or bank account, you do not pay tax on the value of the account that you inherited.  Assuming you inherit a taxable account (e.g., a non-retirement account), you will pay tax on the income you receive from the asset (i.e., dividend income, interest income) once you’ve inherited it, but you will not pay tax on the value of the account you inherit. 

If you should later sell the asset (e.g., a stock in the investment account), you will realize either a capital gain or loss on the sale based on the difference between the cost basis and the sale price.  For an inherited asset, the cost basis is the value of the asset on the date of death.

I hope this helps!