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Financial Planning / Tax Strategies


Subject:  Re: Cost Basis of an Inheritance Date:  5/14/2002  4:18 AM
Author:  ptheland Number:  60612 of 127534

My brother-in-law recently passed away and had some poorly performing mutual funds in a taxable brokerage account where my wife is the named beneficiary.

My condolences on your loss.

She has the option to receive the proceeds in cash or have the mutual funds transferred under her name. Is there any tax advantage to having the mutual funds transferred under her name other than deferring the taxable gain to a future date when she sells the funds.

That's basically the advantage I see - deferral of any taxable event.

I am assuming that her cost basis of the mutual funds will be zero and since she could really use the money now, I would think that the cash option would be best.

Not a correct assumption. Generally, your wife's tax basis will be the value of the mutual funds on the date of her brother's death. Any gain or loss would be calculated from that value.

Am I overlooking any tax advantages or consequences by her taking the cash option?

I'd want to be sure the cash option that you mention is at least the current value of the funds. If it were less, you could take the shares and sell them directly and come out ahead.

Check to see if there are any deferred sales charges (or back end loads) on these mutual funds, and if so, when they expire. You'd hate to pay one of those loads just before it expired.

When you sell the shares (or if you take the cash now), you'll have a capital gain or loss to report on your taxes on schedule D. Since the shares in the funds were inherited, they are treated as long-term items no matter how long you actually hold them.

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