Message Font: Serif | Sans-Serif
No. of Recommendations: 0
My father-in-law's mother has over $200,000 tied up in Questar which is a natural gas company here in the West. The stock has run up roughly 100% since the beginning of 2000. Her cost basis is roughly $50,000. Her annual income is less than 34,500 which is the limit including the standard deduction and her personal exemption to keep her in the 15% tax bracket and thus the 8% LT cap gain bracket for her stock which she has held for over five years. Her yield on the stock is roughly 2.0-2.3%. I've been trying to talk my father-in-law into selling the stock and paying the cap gains (which includes 7% for state income) and setting up a conservative income portfolio which would put 70% of her money in income funds (bonds and gov securities) and money market funds with 30% going to Growth and Income funds (which actually pay out a comparable yield to the one she is getting with Questar) and a Growth fund (only 10% would wind up in Growth). She is in her early seventies. I figure this would be good because she would be paying her taxes in another year with money she never had before the beginning of the year 2000 anyway and she would almost double her monthly income because of the higher yield the funds pay out and with 30% of her portfolio with a growth aspect to it, even if it were to grow only 10%, with yearly portfolio rebalancing her monthly income would increase every year (kind of like a COLA) since the growth would be transferred every year to the income funds thus increasing her principal. I see this strategy as way more conservative than leaving it all in Questar stock especially in light of the situation that California utility companies are in right now. My father-in-law, though, wants to get the stepped-up basis when his mother passes away. And his CPA he works with advised him that if she left it in the stock that he would not have to pay income tax upon her death when the stock is passed on to him (She has set up a trust and is nowhere near the limits for paying estate taxes so that is not an issue, just income taxes). He thinks that if he were to sell now and set up an account with mutual funds that he would then have to pay income taxes when the money in the funds are passed down to him upon her death. So my question is, after all my rambling: Would he have to pay income tax on the money he receives from his mother when she passes away if the Questar stock were sold and the money were put into mutual funds as described above? I imagine he would get a stepped-up basis in the mutual funds also but that it wouldn't be a big jump since she would rebalance her portfolio annually to give her a "COLA" as also described above. Would he have to pay income taxes on the money he would receive if the money were still tied up in Questar stock when she passed away?
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.