A family friend passed away in Feb 2020, and my mother was named as the sole beneficiary to a mix of Non-Qualified Annuities and Certificate of Deposits. As I understand it, both investment types are treated differently in regards to taxes and we would like to wrap our heads around this as we have never dealt with this situation before. Key points are below: All Annuities and CDs were originally purchased with post-tax dollars Owner of CD and Annuity passed away in Feb 2020 One CD expired April 1, 2020 and subsequently the full amount was withdrawn into my mother's bank account One Annuity expires July 2020, and she plans to take a lump sum distribution We reside in California Regarding the Certificate of Deposit, is my mother's tax liability simply the interest earned from the date of the owner's death to the date of expiration? In this case, interest earned from Feb 2020 - April 2020? Would this be taxed based on her Federal income bracket? Is this subject to CA state tax? Regarding the Annuity, if she takes the lump sum distribution is her tax liability the interest earned over the entire life of the annuity? In this case, the interest earned from date of purchase (2014) to date of expiration (July 2020)? Or is the tax liability only the interest accrued from date of death to expiration? is this subject to CA state tax? I greatly appreciate any advice!
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