This article is from the US Taxes FAQ, by Wayne Ross firstname.lastname@example.org.
Property in an estate may be taxable, if the estate is
large enough to be subject to estate taxes. Estate taxes, however,
are levied against the estate not the beneficiaries of the estate.
Of course, if you are the only beneficiary then you will in effect
pay the estate tax. Remember an estate tax is based upon the value
of estate assets, not the income which may later flow from the
Income from an estate asset which was distributed to you
will or will not be taxed, based upon the character of that income.
For example, if an estate included municipal bonds (exempt as to
income), the estate would pay an estate tax on the value of the
bonds, but the interest you receive after the bonds are distributed
to you will not be taxable.
In the above example, since the value of the interest
accrued, and not yet paid on the bonds is an estate asset, that
accrued interest is part of the value of the bond and is taxed to