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Author: wwallberg One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Inherited stock cost basis Date: 7/15/2003 1:00 PM
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Hi - any information would be appreciated.

I am the executor of the estate of my father who passed away late November 2001. One of the assets that will be distributed to myself and brothers is presenting me with some questions.

The particulars: The asset in question is stock in Prudential Insurance (PRU). This stock was a result of a 'demutualization' of the Prudential Insurance company. The sticky point is that the distribution of the stock to my father did not occur until several months after my fathers death (Jan 2002 I believe). I contacted Prudential concerning my fathers cost basis - this is $0. However with the stock being passed via his estate what would the cost basis be for the heirs? There is no value on the date of his death - it had not been issued yet. The earliest trading date for the stock was December 2001 I believe.

Do the heirs assume a cost basis of $0 or some stepped up basis?

Thanks in advance,

Wayne
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66189 of 121219
Subject: Re: Inherited stock cost basis Date: 7/15/2003 1:18 PM
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Hi - any information would be appreciated.

I am the executor of the estate of my father who passed away late November 2001. One of the assets that will be distributed to myself and brothers is presenting me with some questions.

The particulars: The asset in question is stock in Prudential Insurance (PRU). This stock was a result of a 'demutualization' of the Prudential Insurance company. The sticky point is that the distribution of the stock to my father did not occur until several months after my fathers death (Jan 2002 I believe). I contacted Prudential concerning my fathers cost basis - this is $0. However with the stock being passed via his estate what would the cost basis be for the heirs? There is no value on the date of his death - it had not been issued yet. The earliest trading date for the stock was December 2001 I believe.

Do the heirs assume a cost basis of $0 or some stepped up basis?


If you valued the estate's assets as of the date of death, the heirs will assume a $0 cost basis for the shares.

If, on the other hand, you used the alternative valuation date of "late May" 2002, the heirs would assume the value of the shares on the alternative valuation date. You must value the entire estate on one of the two dates... you can't pick which assets to value on which date.

You also would have had to make the election to use the alternative valuation date when you filed Form 706 or within one year of the filing deadline (including extensions).

Ira

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66190 of 121219
Subject: Re: Inherited stock cost basis Date: 7/15/2003 2:34 PM
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<I am the executor of the estate of my father who passed away late November 2001.>


Is there any particular reason why the distributions have not taken place in the last 20 months? I only ask this because the filing of the final year 1040 and the annual 1041s for the estate can be a lot of work. In most cases (unless there is a trust, a business or some other family issue) the executor normally would want to distribute the assets as soon as practical. Generally, the more time that goes by, the more paperwork that needs to be filed.

Another factor is if there is enough income coming in to the estate (from dividends, interest, rental properties, etc) the 1041 tax rates can ramp up very quickly. One may decide to sell assets while they are still within the estate, but doing so will generate a taxable event. BTW, the taxable event can be in your favor too. For example: the costs incurred selling a house can result in a net loss on the sale. This loss would be passed along as a deduction for the beneficiaries by way of the K1's (don't forget it is your responsibility to provide one for all of the beneficiaries). All of this can add a lot of complexity to the process. Most of us who have been executors want to complete the task in a timely manner. A long delay in making distributions can result in a greatly altered value for a property, a business or a stock from the value on the date of death. Hopefully, there is no Enron or Worldcom in the estate.


BRG

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Author: wwallberg One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66208 of 121219
Subject: Re: Inherited stock cost basis Date: 7/17/2003 5:52 PM
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I'd like to thank all for the replies. To clarify a question asked:

Is there any particular reason why the distributions have not taken place in the last 20 months?

Things are moving a little slower than everyone would have anticipated / hoped. Basically my mother passed away 7 months prior to Dad. Assets were split between them with Mom being heavy on cash and house and leaving Dad very cash poor but with sufficient assets(stocks). I couldn't justify selling stock at losses to pay some outstanding bills and felt if I could stall a year the market climate might improve. Fortunately it has (somewhat).

Again - thanks for the quick responses and information.

Wayne

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