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Generally inheritance is not taxable. But if the recipient inherits pre-tax retirement account like 401K or IRA, the distribution from the account will be taxable. Another example is income producing property like real estate or capital investment. Fair market value on day of inheritance is nontaxable but if the property generate interest or is letter sold with a profit, the recipient will have tax liability.
Living trust is just revocable trust that will end with the death of the owner so it will change how the inheritance is taxed/or not taxed.
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