Under federal tax law, inherited stock is stepped up to the average value of the stock on the day of death for small estates such as this. You take the average of the high and low on that day. The person who inherits never pays taxes on the inherited items, it's the estate that does. In this case the exemption means no taxes are due. Mutual funds also receive the benefit of this as would real estate. One of the only things that doesn't is stock in an IRA. You didn't say if she was having to spenddown the stock. I she has to, it's a good arguement for seliing and deversifying.
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