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Sometime before 2000, my mother-in-law moved her security holdings into two brokerage accounts. One account was in her name with her son as joint tenant. The other was in her name with her daughter (my wife) as joint tenant. I'm only concerned with the cost basis of securities held in the latter account.

My mother-in-law died on 08 October 2018 without a will. It is my understanding that the cost basis of the securities held in joint tenancy with her daughter (my wife) would be stepped up to the market value of the securities on 08 October 2018.

My wife died on 15 January 2019. The Probate Court in Nebraska didn't distribute the account held in her mother's and her name until 14 June 2019. It was transferred to my wife's estate that I administer.

What date is used to determine the stepped up cost basis of the securities?

(1) Is it the market value of the securities on 15 January 2019, the date of her death?
(2) Is it the market value of the securities on 14 June 2019 when the securities were distributed to her estate?

I had no knowledge of the securities that she inherited until they were distributed to my wife's estate account on 14 June 2019. I have no knowledge of any dividends received prior to distribution of the account to my wife's estate. I assume that I will be responsible for paying the estate's income taxes on dividends received after the distribution date. Is this correct?
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MCCrockett,

You wrote, It is my understanding that the cost basis of the securities held in joint tenancy with her daughter (my wife) would be stepped up to the market value of the securities on 08 October 2018.

...

My mother-in-law died on 08 October 2018 without a will. It is my understanding that the cost basis of the securities held in joint tenancy with her daughter (my wife) would be stepped up to the market value of the securities on 08 October 2018.


I'm sorry for your losses.

I'm certainly not an expert here, but I think this is can be a pretty complex question, depending on where you live. My understanding is that for an account to be considered Joint Tenancy with Right of Survivorship, the assets in the account must be equally co-owned (50/50). That means your wife would only have received a stepped up cost basis on half of the account.

This may or may not be a fine point since your wife died too. If you are not living in a common property state (Nebraska doesn't seem to be), it seems likely you would receive a stepped up cost basis yourself. But if you were living in a common property state, once the property passed to your wife you may have become a co-owner - giving you a 50% ownership at your wife's cost basis. However the common property state may also exclude inheritances ... meaning this might not be a straight-forward issue.

But since Nebraska doesn't appear to be a common property state, I *think* none of that is an issue for you.

Also, What date is used to determine the stepped up cost basis of the securities?

I'm pretty certain that is based on the day the deceased died - not on the day the securities are distributed.

Finally, I assume that I will be responsible for paying the estate's income taxes on dividends received after the distribution date.

Again, not an expert... But I *think* the estate is responsible for filing returns and paying taxes on income received until all assets are distributed and the estate is closed. Of course for JTWRS accounts, I would think full ownership passed to your wife when her mother died. So at this point the account is part of your wife's estate and it's responsible for the taxes on distributions since her mother died.

Hopefully someone will correct me if I'm wrong...

Also I think I'd consider paying for a professional's advice, unless the amounts are not very significant. In particular state law heavily influences the answer to these questions and I certainly don't know Nebraska probate law.

- Joel
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Sorry for your losses.

Sometime before 2000, my mother-in-law moved her security holdings into two brokerage accounts. One account was in her name with her son as joint tenant. The other was in her name with her daughter (my wife) as joint tenant. I'm only concerned with the cost basis of securities held in the latter account.

My mother-in-law died on 08 October 2018 without a will. It is my understanding that the cost basis of the securities held in joint tenancy with her daughter (my wife) would be stepped up to the market value of the securities on 08 October 2018.


That's not exactly correct. Since your wife was given partial ownership (presumably 50%) sometime before 2000, the basis of her portion would remain the original basis that was gifted. Only MIL's portion (presumably, the other 50%) would get a step up upon MIL's death. That said, it's a moot point, because...

My wife died on 15 January 2019.

Since your wife has died, assuming that she was the sole owner of the account at the time of her death, the entire account will receive a step-up in basis.

The Probate Court in Nebraska didn't distribute the account held in her mother's and her name until 14 June 2019. It was transferred to my wife's estate that I administer.

What date is used to determine the stepped up cost basis of the securities?

(1) Is it the market value of the securities on 15 January 2019, the date of her death?
(2) Is it the market value of the securities on 14 June 2019 when the securities were distributed to her estate?


Typically, the date of owner's death is used for the step up in basis, which would say it's the value as of 1/15/19. However, the executor of the estate can choose an alternate valuation date 6 months after the date of death (in this case 7/15/19) by using IRS Form 706. Be aware that the alternate valuation date must be applied to the entire estate, not just to this one account.

I had no knowledge of the securities that she inherited until they were distributed to my wife's estate account on 14 June 2019. I have no knowledge of any dividends received prior to distribution of the account to my wife's estate. I assume that I will be responsible for paying the estate's income taxes on dividends received after the distribution date. Is this correct?

Your wife's estate should get a K-1 from your MIL's estate that will indicate any tax liability due to dividends receive prior to the date of distribution. As the executor of your wife's estate, you can choose to have the estate pay dividends on any distributions received by the estate, or you can choose to distribute any dividends received to the heirs, and pass the tax liability for those dividends to the heirs.

AJ
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This may or may not be a fine point since your wife died too. If you are not living in a common property state (Nebraska doesn't seem to be), it seems likely you would receive a stepped up cost basis yourself. But if you were living in a common property state, once the property passed to your wife you may have become a co-owner - giving you a 50% ownership at your wife's cost basis. However the common property state may also exclude inheritances ... meaning this might not be a straight-forward issue.

But since Nebraska doesn't appear to be a common property state, I *think* none of that is an issue for you.


I think you mean 'community property' not 'common property'.

That said, in community property states, gifts and inheritances generally remain the sole and separate property of the beneficiary, unless the beneficiary chooses to give the property to the marriage community, such as by moving it to a joint account, or adding the spouse's name to the account's title. Since the property wasn't even received until after the wife's death, presumably, this choice was not made. Therefore, even though, IIRC, MCCrockett lives in California (a community property state), he would not have had any ownership or basis in this account.

And even if the property had been given to the marriage community, all of the community property generally gets a step up in basis to the fair market value upon the death of one of the spouses. From IRS Pub 551 https://www.irs.gov/pub/irs-pdf/p551.pdf

Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property.

So, in either case, the basis would be the value as of the wife's death, or an alternate valuation date (as explained in my previous post).

Hopefully someone will correct me if I'm wrong...

Done.

AJ
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AJ: Thanks for pointing out that I live in California, a community property state, and not in Nebraska. A side benefit of living in California is that my wife was not a resident of Nebraska and her inheritance escapes Nebraska's inheritance tax.

Inheritances and assets owned by a spouse prior to marriage remain the property of the spouse and are not part of the spouses' community property. As my wife died intestate and the inheritance wasn't distributed until after her death. As my wife and I had 3 children, California Intestacy Laws require that her estate be distributed with 1/3 going to me as the surviving spouse and the remaining 2/3 of her estate being equally divided between the 3 children.

I had to create an account for her estate at the brokerage that held her mother's and her joint account. When I got online access to the estate account, I discovered the transaction list only showed the securities, number of shares, and the market price on the day of the transfer. There was no cost basis information or any indication when the shares were originally purchased.

The brokerage claimed that they supported Quicken transaction downloads. When I attempted to download the transactions into a Quicken database that I had created for my wife's estate, the download failed. It turns out that the financial institution information in the QFX file header was for another brokerage. I had to manually enter all of the transactions into the Quicken database. As a temporary measure, I set the cost basis for the shares based on the market value of the stock on 15 January 2019.

I started thinking about whether this was right as she/her estate didn't have possession of the assets until 14 June 2019. This is the reason that I started this discussion.
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As a temporary measure, I set the cost basis for the shares based on the market value of the stock on 15 January 2019.

I started thinking about whether this was right as she/her estate didn't have possession of the assets until 14 June 2019. This is the reason that I started this discussion.

===================================
Then you did it right; regardless of the treatment in the first estate, with the assets passing to you at your wife's death you get a full step-up as of the date of death.

Bill
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Couple of things I have not seen mentioned, so I will.
*Not* an expert; these things should be confirmed.

1. We throw around the term price "on the date of death", but does that mean at the open? The close? I have found that the answer is: the average of the high and low on that date.

2. I don't think this is relevant in your case, but when one inherits a stock/ETF/mutual fund, even if it had been held only a few days, it automatically becomes a long-term hold, with the applicable ramifications for tax purposes.

#2 can be a good thing or a bad thing. In my case, after my wife passed, I sold a position held less than a year, with a loss. For tax purposes, it would have been better for me if the loss was a short-term loss, but it automatically became a long-term loss.
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Also I think I'd consider paying for a professional's advice, unless the amounts are not very significant. In particular state law heavily influences the answer to these questions and I certainly don't know Nebraska probate law.

I do have professional advice from the Probate Attorney that I hired to deal with probate matters related to my wife's death.

After glancing through the IRS documentation on Form 1041 that I will need to file next year for my wife's estate, I will definitely be seeking the advice of a CPA or tax attorney.
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