Thank fuck I'm in Canada (I don't often get to say that). I'll keep my winnings in my family.
You might want to google estate tax in Canada. You don’t pay tax on the inheritance but the person who passed away get hit with a lifetime of capital gains tax on their final return.
I stole the below from the web.
With regards to your assets, it’s important to understand that all of your assets are deemed to have been “sold” just prior to death for tax purposes. This would include real estate, land, businesses, investments and your RRSPs. Here are a few common examples of how this “sale” of assets can create income tax at death.
Joe has $100,000 in RRSPs. When he passes away, the $100,000 RRSP is deemed to have been cashed in and on Joe’s final tax return, $100,000 of RRSP income will be added to his other sources of income.
Let’s pretend Joe’s money was in a RRIF instead of an RRSP and Joe had already received $5250 of income from monthly RRIF payments prior to his death. On Joe’s final tax return, there would be $5250 of RRIF income and then another $100,000 of income from the asset.
Another common example comes from Real Estate, whether it’s an investment property or a recreational property. Let’s pretend Elizabeth has an investment condo that she has owned and rented out for over 15 years. When Elizabeth passed away on June 30th, her condo is deemed to have been sold for tax purposes. Let’s say she paid $150,000 originally for the condo and now it’s worth $275,000. There is a capital gain of $125,000 of which 50% is taxable. Elizabeth’s final tax return would have to show net rental income for 6 months of the year plus the $67,500 of taxable capital gains.
Stacy has a cottage at the lake that she inherited from her parents 22 years before she passed away. The cottage has been in the family for multiple generations and rumor has it that the land the cottage was built on was originally bought for less than $1000. When Stacy passed away at the age of 77, the cottage was deemed to have been sold for tax purposes for $850,000. When she inherited the cottage the value of the cottage was $725,000. Her parents would have paid for any capital gains prior to Stacy inheriting the property. Stacy’s final tax return needs to show the $67,500 of taxable capital gains (50% of $850,000-$725,000).
The last example is for those that pass away with non-registered investments like stocks or mutual funds. Barry worked for the same company for 32 years and as a result held $325,000 worth of stock of the company he worked for. When Barry passed away, the stocks were deemed to have been sold for tax purposes. the adjusted cost base (ACB) of the shares were calculated to be $110,000. At death, Barry has $215,000 of capital gains of which 50% is taxable. Barry’s final tax return must show $107,500 of taxable capital gains plus and dividends he would have received from the beginning of the calendar year.
As you can see from these examples, the deemed disposition (sale of assets for tax purposes) can potentially trigger a lot of taxation. In any of these examples, if there was a spouse as a beneficiary, there would be some rollover provisions where the tax may not be triggered now but deferred until later.
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