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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?

No one pays any income tax on this type of inheritance, whether it's the old stock or a new mutual fund. The difference is that if m-i-l sells the stock, income tax on the gain is due for the year in which it's sold. If someone inherits it, the stepped up basis means that no income tax will be paid on the appreciation (up to the date of death.)

See Publications 550 and 551.

Phil Marti
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