Legal Question in Wills and Trusts in California

Any tax due would be the liability of your mother-in-law's Estate, but only if the total value of the Estate exceeded the taxable threshhold of $3.5 million. Assuming that she is not liable for millions in life insurance or assets from a husband who died, then there should not be any tax owing. Your wife inherits the house with a step-up basis (the value as of the date of death), meaning that if your wife sells the house, she only has to pay tax on the increase in value since she inherited it.

There will not be any estate tax on a $500,000 estate, but If the bank accounts with the beneficiary designations were IRAs or other qualified plan accounts, there could be deferred income taxes due. Your wife should consult and accountant.