A bequest is a gift of property made through a will or trust that takes effect at the death of the person who made it. It is not an inter vivos gift, meaning a transfer completed while the giver is alive, and it is not an inheritance in the strict legal sense, meaning property that passes to an heir under state intestacy law because no valid will directed it. Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance (26 U.S.C. 102(a)).
That exclusion reaches the property, not what the property later earns. Subsection (b) withholds it from the income from any property referred to in subsection (a), and any amount included in a beneficiary’s gross income under subchapter J is treated as a bequest of income from property (26 U.S.C. 102(b)). That is why estate income distributed to a beneficiary stays taxable to them while the bequest itself stays off their return.
Bequest, Devise and Inheritance
Traditionally, bequests have been used for the giving of personal property, while devises have been used for the giving of real property, although a bequest can reach real property where the will clearly indicates that intent (Legal Information Institute, bequest).
Inheritance sits on a different axis. Though sometimes used in reference to property acquired through a will, its legal meaning includes only property that descends to an heir through intestacy, when a person has died intestate (Legal Information Institute, inheritance). A will can create a bequest but not, strictly, an inheritance.
Types of Bequest
A specific bequest names identifiable property. To qualify under section 663(a) as a bequest of specific property, the identity of that property must be ascertainable under the terms of a testator’s will as of the date of his death, or under the terms of an inter vivos trust instrument as of the date of the inception of the trust (26 CFR 1.663(a)-1(b)(1)-1)).
A pecuniary bequest is a bequest of a sum of money (IRS, Instructions for Form 1041 (2025)).
A residuary bequest gives whatever is left once the others are satisfied. A residuary estate or the corpus of a trust is not considered a gift or bequest of a specific sum of money or of specific property (26 CFR 1.663(a)-1(b)(2)-1)), so a residuary distribution is not excluded under section 663(a)(1) and falls into the estate’s distribution computation instead.
Which Return It Touches
A specific or pecuniary bequest touches the estate’s returns, not the recipient’s individual return. A residuary distribution is not excluded under section 663(a)(1) (26 CFR 1.663(a)-1(b)(2)-1)), so it carries estate income out to the beneficiary’s own return instead.
The estate tax side is Form 706. The executor uses it to figure the estate tax imposed by chapter 11 of the Internal Revenue Code, a tax levied on the entire taxable estate and not just on the share received by a particular beneficiary, and it is due within 9 months after the date of the decedent’s death (IRS, Instructions for Form 706, Rev. September 2025). The fair market value standard behind its figures is set out in valuation.
Income the estate earns during administration goes on Form 1041. The fiduciary must file it for a domestic estate with gross income for the tax year of $600 or more, and each beneficiary’s share of that income reaches them on Schedule K-1 (Form 1041) (IRS, Instructions for Form 1041 (2025)).
A specific or pecuniary bequest stays out of that distribution figure. A gift or bequest of a specific sum of money or of specific property, required by the specific terms of the will or trust instrument and properly paid or credited to a beneficiary, is not allowed as a deduction to the estate under section 661 and is not included in the beneficiary’s gross income under section 662, unless the instrument provides for payment in more than three installments (26 CFR 1.663(a)-1(a)-1)). An amount payable only from the income of the estate or trust does not count as a specific sum of money in the first place (26 U.S.C. 663(a)(1)).
Basis in what arrives is a separate rule, worked through in step-up basis, and a transfer completed during life runs on the gift tax rules instead, covered in gift tax exclusion.
Common Questions
For the section 102 exclusion the label decides nothing, since section 102(a) excludes property acquired by gift, bequest, devise, or inheritance alike (26 U.S.C. 102(a)). The label still decides which rules apply before the transfer lands, because a lifetime gift runs on the gift tax rules and a bequest takes effect only at death.
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