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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: inheriting stock Date: 2/28/2014 3:47 PM
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My father is in the final stages of life. He has a portfolio of about $2m. There are 4 children, six grandchildren. Each grandchild gets a straight bequest of $30k, the remainder is split among the four children. Almost all of the portfolio is in (highly) appreciated stock.

Three of the four children have brokerage accounts, the fourth does not, and asks [insists] that the inheritance be sent "in money" rather than stock when the time comes. I understand that inheriting "stock" will preclude taxes on appreciated gains. If I sweep the stock into the various brokerage accounts, no tax. What happens if I sell the fourth share and convert it "to money"? Will it then be taxed and will she receive less?

Thanks.
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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120292 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 3:52 PM
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My father is in the final stages of life.

Goofy, I am so sorry for your current state of affairs. You are never too old for the loss of a parent to hurt.

IP,
letting the tax pros deal with the tax question, not being sure Sis dealt with it correctly

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120294 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 4:37 PM
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When your father passes, all of the stocks he owns will have their cost basis changed to the fair market value on the date of his passing. So on that date, the entire portfolio could be sold and there would be no gain or loss.

In the real world, there will be some time that elapses between his passing and dealing with the estate. So the portfolio will have some gain or loss by the time stocks are sold.

I understand that inheriting "stock" will preclude taxes on appreciated gains. If I sweep the stock into the various brokerage accounts, no tax.

Let me clarify this a bit. You are correct that there would be no current taxes because the stocks weren't sold. However, the stocks were all re-valued as of the date of death. So barring some major stock price moves, there is probably little gain or loss anyway.

What happens if I sell the fourth share and convert it "to money"? Will it then be taxed and will she receive less?

If the estate (or trust) sells the stock, then the estate will report any gain or loss on the sale of the stock. A gain could be passed through to your sibling and they could pay their own tax on the gain. However, a loss gets trapped inside the estate/trust. Eventually, that loss will get distributed to the beneficiaries (and could be assigned to the one sibling), but that can't be done until the estate is settled and a final return filed for the estate. And it's possible that other stock transactions in the estate could use up part of the loss before it is distributed on the final return.

--Peter

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120295 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 4:44 PM
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My father is in the final stages of life. He has a portfolio of about $2m. There are 4 children, six grandchildren. Each grandchild gets a straight bequest of $30k, the remainder is split among the four children. Almost all of the portfolio is in (highly) appreciated stock.

Three of the four children have brokerage accounts, the fourth does not, and asks [insists] that the inheritance be sent "in money" rather than stock when the time comes. I understand that inheriting "stock" will preclude taxes on appreciated gains. If I sweep the stock into the various brokerage accounts, no tax. What happens if I sell the fourth share and convert it "to money"? Will it then be taxed and will she receive less?


My condolences, Goofy. It's a difficult time.

The estate gets the same stepped-up basis as heirs do, so no income tax would be due just because the estate sold some of the stock.

That said, and assuming you're the executor, I strongly recommend that you deal with all distributions the same way--stock or cash. The easiest method would be to sell everything. Cash is much easier to split x number of ways.

Talk it over with the estate's attorney.

Phil
Rule Your Retirement Home Fool

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120299 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 7:28 PM
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It's a difficult time.

Yes. Thanks to you and ip and others for your thoughts. He's bounced up and down over the last several months, but just last week said "I don't want to go to the hospital anymore." That's unusual because he typically has a highly optimistic life outlook. But maybe we'll be lucky and he'll bounce back (it's happened before) and things will turn up.

As it turns out I am not the executor, that would be the other sister. The account is in a trust, and the lawyer is local (to her, not me.) She called and asked, and I wanted to make sure my answer to her was correct, which it mostly was (although I didn't think about the time between the event and the dispersal.)

Although small, one followup. About $30k is in his IRA. I think I recall a way to pass that free of taxes (temporarily). I'm sure the estate attorney will know, but more information is always better. Anyway, thanks again.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120301 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 7:33 PM
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About $30k is in his IRA. I think I recall a way to pass that free of taxes (temporarily). I'm sure the estate attorney will know, but more information is always better. Anyway, thanks again.

Does the IRA have beneficiaries listed or does it go through the estate? If the IRA had beneficiaries, it can be split between the beneficiaries then they can either immediately distribute their portion or, I believe, within 5 years. Only a spouse can roll an IRA into their name.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120302 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 7:37 PM
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Although small, one followup. About $30k is in his IRA. I think I recall a way to pass that free of taxes (temporarily). I'm sure the estate attorney will know, but more information is always better. Anyway, thanks again.

Who is the beneficiary on the IRA? If it is the estate, then IIRC, it has to be drawn down and taxes paid. If it is to an individual(s), then it can either be drawn down and taxed or rolled over to an inherited IRA subject to RMDs based on new owner's desire. Then the new owner only pays taxes on RMDs if they choose to go the inherited IRA route. I don't see any upside to making the beneficiary of an IRA the estate, but not a tax pro.

Now is also a really good time to check your dad's documents. We found out that Dad played estate lawyer, making changes to his will and trust via cross out, initial and witness, which invalidated them in the state he was living. Fortunately, we were able to reprint off the original docs and get them signed and witnessed, so that he had valid docs when he passed.

Not a fun time.

IP

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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120303 of 121565
Subject: Re: inheriting stock Date: 2/28/2014 9:23 PM
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I don't see any upside to making the beneficiary of an IRA the estate, but not a tax pro.

The last time I did my will, my attorney specifically advised against making it a part of my estate. He was to be the executer, and he said his fees would be higher if I did that. That I should tell Ameritrade (where the IRA is) who the beneficiaries were to be and the proportion to each. That way it would not have to go through the estate.

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