I inherited individual stock. Should I sell it now or wait?

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NoLongerLurking
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I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Wed Jan 09, 2019 9:23 pm

Hello Bogleheads. Long lurker, first time poster here. I finally have a question that I can’t easily find an answer to in the Wiki or books. Any advice would be greatly appreciated.

This week, I inherited $7000 in individual stock in one particular company. For various reasons, I strongly believe this stock won’t hold its value much longer. And even if I’m wrong, I’d still rather put the $7000 elsewhere.

The reason why I’m here is because I’m scared to make a financial decision like this when I’m still reeling from the loss of my father (it was his stock that I inherited). One of the first things I did when it happened was read the “Managing a Windfall” chapter of “The Boglehead’s Guide to Investing.” It advises waiting six months or longer before making big decisions. Although I’m largely following that advice, this particular stock situation is nagging me.

Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation.

How do I balance the Boglehead philosophy of “sit and wait after a windfall” with “get your money out of individual stocks and into index funds”? What should I do?

P.S. I owe a very big “THANK YOU!” to all of the contributors to the Bogleheads wiki and forum, as well as Taylor Larimore, Mel Lindauer, and Michael LeBoeuf. I could not have navigated the financial part of inheriting without your help. Thank you.

livesoft
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Re: I inherited individual stock. Should I sell it now or wait?

Post by livesoft » Wed Jan 09, 2019 9:32 pm

Sell now and invest into your asset allocation.

I always tell people to sell. You should have no sentimental value towards this stock. Your asset allocation is unlikely to match the asset allocation of the deceased if they had one.

I have told my kids that they should attach no sentimental value to any of the index funds they will inherit from me and they are free to sell them and apply them to their own asset allocation plan.
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ionball
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Re: I inherited individual stock. Should I sell it now or wait?

Post by ionball » Wed Jan 09, 2019 9:35 pm

+1

What livesoft said.

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sleepysurf
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Re: I inherited individual stock. Should I sell it now or wait?

Post by sleepysurf » Wed Jan 09, 2019 9:51 pm

NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
...Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation...
Inherited stocks get a "stepped up" cost basis (see Wiki... https://www.bogleheads.org/wiki/Step-up_in_basis). So, unless the stock has significantly appreciated since the date of your father's death, there will be no capital gains taxes. Agree with selling sooner, rather than later.

Sorry for your loss.
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NoLongerLurking
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Re: I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Wed Jan 09, 2019 9:59 pm

livesoft wrote:
Wed Jan 09, 2019 9:32 pm
Sell now and invest into your asset allocation.

I always tell people to sell. You should have no sentimental value towards this stock. Your asset allocation is unlikely to match the asset allocation of the deceased if they had one.

I have told my kids that they should attach no sentimental value to any of the index funds they will inherit from me and they are free to sell them and apply them to their own asset allocation plan.
It's more of an issue that I''m scared of making an impulsive decision at a stressful time in my life than it is about sentimentality. I agree that stocks aren't a thing to be sentimental about. Thanks for the advice. :D

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NoLongerLurking
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Re: I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Wed Jan 09, 2019 10:01 pm

sleepysurf wrote:
Wed Jan 09, 2019 9:51 pm
NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
...Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation...
Inherited stocks get a "stepped up" cost basis (see Wiki... https://www.bogleheads.org/wiki/Step-up_in_basis). So, unless the stock has significantly appreciated since the date of your father's death, there will be no capital gains taxes. Agree with selling sooner, rather than later.

Sorry for your loss.
Thank you, sleepsurf. I wasn't aware of the "step-up."

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Taylor Larimore
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Re: I inherited individual stock. Should I sell it now or wait?

Post by Taylor Larimore » Wed Jan 09, 2019 10:09 pm

NoLongerLurking

No doubt about it. Sell your individual stock now to avoid becoming "locked-in" to a single stock because of future capital gains. Mutual funds are much safer.

Sorry about your loss.

Best wishes.
Taylor
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stimulacra
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Re: I inherited individual stock. Should I sell it now or wait?

Post by stimulacra » Wed Jan 09, 2019 10:15 pm

If you have a thought out IPS and asset allocation I would sell it.

Most people I know that inherited individual stocks and held onto to it for sentimental reasons later wished they had sold it.

Sorry for your loss.

InvestingNewbie11
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Re: I inherited individual stock. Should I sell it now or wait?

Post by InvestingNewbie11 » Wed Jan 09, 2019 10:20 pm

As someone who recently lost both my mom and dad, if I may make a recommendation:

Chill....

Losing loved ones is enough, wait till you need to deal with all the estate bulls--t. Attornies, tax returns, home(s), and everyone else who magically comes out of nowhere to take money. It is pretty amazing to deal with to be honest.

You are already in 2019, so selling right this second honestly wont help/hurt you from a tax perspective, yet. If the equity goes up, great! If it goes down, at least by then you have had time to let the dust settle a little.

I am not sure of your dad's estate, but if needed don't be afraid to hire a financial planner. I know I am going directly against everyone here saying that, however I am man enough to admit when I don't know something. A good financial planner will help you figure out the tax challenges you may be facing like mine did.

I am terribly sorry for your loss. Nothing hurts more than losing a loved one, especially for me my dad. If you ever need any other advice, message me. I went through it times 2 in 2017, my estate attorney thinks I should write a book with how much I learned.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by phantom0308 » Wed Jan 09, 2019 10:23 pm

Due to the stepped up cost-basis, selling is only converting the stocks to cash with no side effects. If you don’t have an IPS. I’d sell, work on creating one as your life settles down, and then decide what to do.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by Stinky » Wed Jan 09, 2019 10:28 pm

phantom0308 wrote:
Wed Jan 09, 2019 10:23 pm
Due to the stepped up cost-basis, selling is only converting the stocks to cash with no side effects. If you don’t have an IPS. I’d sell, work on creating one as your life settles down, and then decide what to do.
Agreed with this.

If you have current doubts about ultimate asset allocation, sell now, put proceeds into money market fund, and figure out AA when you can.
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Re: I inherited individual stock. Should I sell it now or wait?

Post by Big Dog » Wed Jan 09, 2019 10:33 pm

when my mother-in-law passed away a couple of years ago, she had a bunch of individual stocks. I sold them all with the stepped up cost basis. I felt particularly bad about selling one stock, since I knew it was the first one my dad ever bought. However, its returns sucked, so I sold it off too. Invested the balance in Total Stock Market.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by Watty » Wed Jan 09, 2019 10:38 pm

Taylor Larimore wrote:
Wed Jan 09, 2019 10:09 pm
NoLongerLurking

No doubt about it. Sell your individual stock now to avoid becoming "locked-in" to a single stock because of future capital gains. Mutual funds are much safer.

Sorry about your loss.

Best wishes.
Taylor
NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
P.S. I owe a very big “THANK YOU!” to all of the contributors to the Bogleheads wiki and forum, as well as Taylor Larimore, Mel Lindauer, and Michael LeBoeuf. I could not have navigated the financial part of inheriting without your help. Thank you.
NoLongerWorking,

If you didn't notice this post was by Taylor Larimore who you thanked in your original post.

I agree that you should sell it and just put the money someplace safe for six months.

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Starchild
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Re: I inherited individual stock. Should I sell it now or wait?

Post by Starchild » Wed Jan 09, 2019 10:39 pm

Think of it this way. If you decide to sell it for an index fund, you will still own that one company and many more. :-)

mcraepat9
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Re: I inherited individual stock. Should I sell it now or wait?

Post by mcraepat9 » Wed Jan 09, 2019 10:45 pm

Gordon Gekko said it best - don’t get emotional about a stock. Sell immediately and get your investments aligned with your plan.

Very sorry about your loss.
Amateur investors are not cool-headed logicians.

delamer
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Re: I inherited individual stock. Should I sell it now or wait?

Post by delamer » Wed Jan 09, 2019 10:52 pm

NoLongerLurking wrote:
Wed Jan 09, 2019 10:01 pm
sleepysurf wrote:
Wed Jan 09, 2019 9:51 pm
NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
...Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation...
Inherited stocks get a "stepped up" cost basis (see Wiki... https://www.bogleheads.org/wiki/Step-up_in_basis). So, unless the stock has significantly appreciated since the date of your father's death, there will be no capital gains taxes. Agree with selling sooner, rather than later.

Sorry for your loss.
Thank you, sleepsurf. I wasn't aware of the "step-up."
It is likely that you received a step up. However, if the stock was held in certain types of trusts — like a credit shelter trust — then you would not get a step up.

The attorney who is settling the estate can confirm the step up.

I am sorry about your father.

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BL
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Re: I inherited individual stock. Should I sell it now or wait?

Post by BL » Wed Jan 09, 2019 11:09 pm

Since you are concerned about keeping the stock, I don't see any harm in selling it. You don't have to decide where to invest it yet; putting it in short term CDs, money market, or savings account is fine while you allow yourself some time to process all that happened. Even if you should decide to buy it back, which would not be recommended here, that can be done later.

Yes, verify the step-up.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by SoAnyway » Wed Jan 09, 2019 11:39 pm

OP, I'm so sorry for your loss. I went through it myself, inheriting stock from my Dad 15 years ago. It's a surreal period, I know. You've gotten outstanding advice in this thread from some of the Lord-God-Kings of this forum, Mr. Larimore and Livesoft. Sell.
NoLongerLurking wrote:
Wed Jan 09, 2019 10:01 pm
sleepysurf wrote:
Wed Jan 09, 2019 9:51 pm
NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
...Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation...
Inherited stocks get a "stepped up" cost basis (see Wiki... https://www.bogleheads.org/wiki/Step-up_in_basis). So, unless the stock has significantly appreciated since the date of your father's death, there will be no capital gains taxes. Agree with selling sooner, rather than later.

Sorry for your loss.
Thank you, sleepsurf. I wasn't aware of the "step-up."
Among other reasons such as your own portfolio diversification, the basis step-up at DOD is a key factor in the advice to sell as soon as the stock's in your name. That is, not only do you get the benefit of diversification (always wise), but for little to no capital gains cost. (Win, win!) Indeed, without knowing your Dad's basis and portfolio it's impossible for me to say, but it might actually be the case that your Dad held onto the stock (despite the risk to his own portfolio diversification) knowing that (a) if he sold while alive, he'd have to pay huge capital gains taxes, thus potentially leaving less of an inheritance to you, and (b) if he passed away holding the shares, you'd get the benefit of the basis step-up that was unavailable to him.

FWIW, this was precisely the situation in my Dad's case. He was born back in the '20s just a few years after Mr. Larimore. He was a tax professional, and spent his entire career after his military service with a single megacorp that had a generous ESPP and pension plan. As a result of the pension plan, he never had to touch his investment portfolio during his retirement. As a result of the ESPP, he held a bunch of stock in his former employer, as well as various progeny corps. as a result of mergers, spin-offs, etc. over the years. Like most of his generation, he spent years getting fleeced in the remainder of his portfolio by the large brokerage firms, because until Vanguard's founding when my Dad was in his 50s, that's really all that was available to retail equity investors.

In any case, although he quickly learned about diversification and index funds in his 50s and 60s, he just couldn't stomach the thought of incurring all those capital gains taxes by selling the stock - esp. knowing that us kids would get the basis step-up when he died. So he held the stock, and prayed that it was the right decision for what he'd be able to leave to us. Like Livesoft, though, if he told us once, he must have told us a thousand times: As soon as possible after I've passed, sell it ALL and invest the proceeds in a diversified portfolio of low-cost index funds. Which is exactly what we did.

SoAnyway.... Godspeed to you, NoLongerLurking, and again, my deepest sympathies.

EDIT: The interim posts I just read now are also wise. As Delamer mentioned, be sure you're getting the basis step-up. It would be unusual for you not to get the step-up, but we don't know the complexities of your father's estate and it's none of our business. And to BL's point, separate out the "sale decision" from the "what-to-do-with-the-proceeds" decision. In my case, Dad made sure to address both. But that might not be true in your case. So once you're certain of the basis step-up, sell. If you're too overwhelmed with everything else you've got going on re. the estate at that point (understandably so) to address the investment decision, there's NO shame in putting the proceeds into a safe investment vehicle like a MMMF, CDs, what-have-you until you're comfortable making the investment decision.
Last edited by SoAnyway on Thu Jan 10, 2019 12:13 am, edited 4 times in total.
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.

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Raymond
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Re: I inherited individual stock. Should I sell it now or wait?

Post by Raymond » Wed Jan 09, 2019 11:51 pm

Sorry about your father.

In your position, I would sell the stock, for the reasons already given.

I wish I had done so soon after my mother's passing in 2011 - I did not, so now I have two stocks with about five digits in capital gains I'd have to pay taxes on if I sell them now.

I guess it could be worse - at least there is a gain, and they pay around 2.5% in dividends, but it throws off my asset allocation quite a bit.
"Ritter, Tod und Teufel"

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NoLongerLurking
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Re: I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Thu Jan 10, 2019 12:54 am

Thank you all so very much for your kind words and advice. It genuinely puts my mind at ease now to sell the stock (after first confirming that I got the step-up!). It's one less stress off my mind during an otherwise very stressful time. I read every single comment and they're all very much appreciated.

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NoLongerLurking
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Re: I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Thu Jan 10, 2019 12:55 am

Taylor Larimore wrote:
Wed Jan 09, 2019 10:09 pm
NoLongerLurking

No doubt about it. Sell your individual stock now to avoid becoming "locked-in" to a single stock because of future capital gains. Mutual funds are much safer.

Sorry about your loss.

Best wishes.
Taylor
You just made this fangirl's day, Mr. Larimore. Thank you very much for the advice.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by NoLongerLurking » Thu Jan 10, 2019 8:01 pm

UPDATE!

I sold the stock. I confirmed I got the "step-up" first. I made a small profit on the stock sale, but the tax bill won't be too bad. All in all, it feels like a weight has been lifted off my chest. I don't care what happens to the stock price now--the peace of mind is worth it.

Thank you, Bogleheads. Your advice really truly helped.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by Alan S. » Thu Jan 10, 2019 8:27 pm

Am late to this thread.
If the shares were for a company he worked for over a number of years or a spin off from such a company, there is a chance that they could be NUA shares. NUA shares just sit in a taxable brokerage account and are not flagged with any identification as such so many people including tax preparers or executors might be totally unaware of this situation.

NUA does not get a step up in basis. The basis remains the cost when purchased in the retirement plan, and is normally quite low. If the cost basis was not low when distributed, people would keep the shares in a retirement plan or do an IRA rollover.

I wouldn't spend any time on this UNLESS the shares were those of a former employer.
NOTE: Even though the cap gains on the sale of these shares would be more, that should not affect the decision to sell.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by abuss368 » Fri Jan 11, 2019 7:01 pm

I am sorry for your loss. To answer your question, Jack Bogle has often said that most people should not own individual stocks.

Why search for the needle in the haystack when one can buy the haystack.
Last edited by abuss368 on Fri Jan 11, 2019 7:02 pm, edited 1 time in total.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: I inherited individual stock. Should I sell it now or wait?

Post by abuss368 » Fri Jan 11, 2019 7:02 pm

I forgot to mention in my earlier post:

Own a few index funds and move forward.

Keep investing simple.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: I inherited individual stock. Should I sell it now or wait?

Post by celia » Fri Jan 11, 2019 7:15 pm

NoLongerLurking wrote:
Wed Jan 09, 2019 9:23 pm
This week, I inherited $7000 in individual stock in one particular company. For various reasons, I strongly believe this stock won’t hold its value much longer. And even if I’m wrong, I’d still rather put the $7000 elsewhere.

...Another thing to consider is that I have no idea what my current tax situation is at the moment because of the whole inheritance thing. The estate is still being settled. I don’t know how the sale of this stock will affect my tax situation.
It looks like the $7,000 stock is a small part of your inheritance and it won't have much impact on your financial situation. Assuming you are not the executor or trustee for the estate, the big decisions will be after you receive the rest of the inheritance. If your dad had any IRAs or retirement accounts, hopefully the executor or trustee will know how to handle them properly instead of pulling all of the money out of the accounts.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by AllieTB1323 » Fri Jan 11, 2019 7:29 pm

phantom0308 wrote:
Wed Jan 09, 2019 10:23 pm
Due to the stepped up cost-basis, selling is only converting the stocks to cash with no side effects. If you don’t have an IPS. I’d sell, work on creating one as your life settles down, and then decide what to do.
I'm so sorry for your loss.

Excellent advise. With the step-up base you can bank the cash and take time to make the decision. Develop an IPS and use the cash to implement it.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by inbox788 » Sat Jan 12, 2019 6:04 am

sleepysurf wrote:
Wed Jan 09, 2019 9:51 pm
Inherited stocks get a "stepped up" cost basis (see Wiki... https://www.bogleheads.org/wiki/Step-up_in_basis). So, unless the stock has significantly appreciated since the date of your father's death, there will be no capital gains taxes. Agree with selling sooner, rather than later.
Is it possible to combine gifting with inheriting a step up basis? I recognize there are pitfalls and other reasons one may not want to try this, but in the simplest case, an investor could gift a parent shares and if they inherited back the shares years later, they may benefit from a step up basis. The heir may be someone else you may advise and agree would receive an inheritance. Or one could simply gift shares/cash to reduce parent ongoing expenditure and preserve more inheritance to any heirs.

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Re: I inherited individual stock. Should I sell it now or wait?

Post by Alan S. » Sat Jan 12, 2019 1:43 pm

Your basis on the inherited shares are their value on the date of death. But what is that value?

Death on day the markets are open - the DOD value is the average of the lowest selling price that date and the highest. It is NOT the closing value.

Death on weekend or holiday - average of most recent trading day lowest and highest with the next trading day average of lowest and highest. So you need 4 figures from which to calculate the average.


Holding period - inherited shares are deemed to be held long term, so if there is a gain or loss after you inherit, either will be long term.


If you then gift the inherited shares, the donee's basis depends on whether the donee sells the shares at a loss or gain from the value on the date of the gift.

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