Inherited stocks/mutual funds and bump in cost basis.

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is50xenough
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Inherited stocks/mutual funds and bump in cost basis.

Post by is50xenough » Fri Jun 21, 2019 4:42 am

Never cease to be amazed by the knowledge of this group. Thanks for education and stimulation. Several posts including one in another section on joint accounts brings up this question. How do different ways of labeling accounts (joint pod, joints tenants in common, etc) affect inheritance and ramp up in cost basis? Underlying question is how to set up for easiest transfer but maximum financial benefit for heirs?

dbr
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by dbr » Fri Jun 21, 2019 8:54 am

I would consult a tax accountant or estate attorney in your state to consider your specific situation. The answer is state dependent among other things.

senex
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by senex » Fri Jun 21, 2019 3:34 pm

is50xenough wrote:
Fri Jun 21, 2019 4:42 am
How do different ways of labeling accounts (joint pod, joints tenants in common, etc) affect inheritance and ramp up in cost basis? Underlying question is how to set up for easiest transfer but maximum financial benefit for heirs?
There are several informative links (to kiplinger & other sites) in a recent thread: viewtopic.php?t=283869

My basic understanding (as a non-professional) is:
- anything solely in the deceased's name gets full step-up basis
- anything JTWROS with the deceased either gets half the account value stepped-up (most cases) or full step-up (if they live in a community property state AND the joint owner is the spouse) (seems hard to believe; worth further study if you're in such a state)
- Tenants in Common operates weirdly; not sure of the details; some of the links in the other thread may discuss this case

Good luck.

delamer
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by delamer » Fri Jun 21, 2019 6:40 pm

If the inherited assets are held within certain kinds of trusts — one example is a credit shelter trust — then there is not a step-up at the time of death.

I agree with the suggestion to consult with an estate attorney. There are a lot of knowledgeable people on this forum, but you don’t want to assume that you understand the implications of how an account is held based on what you read here. Think of this place as a way to find out what questions to ask, rather than for getting definitive answers.

Big Dog
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by Big Dog » Fri Jun 21, 2019 6:45 pm

anything JTWROS with the deceased either gets half the account value stepped-up (most cases) or full step-up (if they live in a community property state AND the joint owner is the spouse) (seems hard to believe; worth further study if you're in such a state)
Not a lawyer, but I believe that technically, folks living in community property states should hold title in a Community Property account for full step up by a spouse. Vanguard offers a Comm Prop registration.

Nutmeg
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by Nutmeg » Fri Jun 21, 2019 8:06 pm

is50xenough wrote:
Fri Jun 21, 2019 4:42 am
Never cease to be amazed by the knowledge of this group. Thanks for education and stimulation. Several posts including one in another section on joint accounts brings up this question. How do different ways of labeling accounts (joint pod, joints tenants in common, etc) affect inheritance and ramp up in cost basis? Underlying question is how to set up for easiest transfer but maximum financial benefit for heirs?
Note that basis is not necessarily stepped up but rather is marked to market, which could result in a step up or a step down.

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FIREchief
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by FIREchief » Fri Jun 21, 2019 10:17 pm

Big Dog wrote:
Fri Jun 21, 2019 6:45 pm
anything JTWROS with the deceased either gets half the account value stepped-up (most cases) or full step-up (if they live in a community property state AND the joint owner is the spouse) (seems hard to believe; worth further study if you're in such a state)
Not a lawyer, but I believe that technically, folks living in community property states should hold title in a Community Property account for full step up by a spouse. Vanguard offers a Comm Prop registration.
I investigated this thoroughly for my community property state, receiving inputs from two experienced attorneys. Assets held by a married couple in a jointly owned account will receive full step up basis when either spouse dies. Although some brokerages do offer a community property account registration option, I believe that it is meaningless in my state. I've also read that it can help with the IRS to have a document that both spouses have signed declaring all their non-qualified assets to be community property. I have no idea if such a document would be worth the paper it is printed on. Please see my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Big Dog
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by Big Dog » Sat Jun 22, 2019 12:02 pm

I investigated this thoroughly for my community property state, receiving inputs from two experienced attorneys. Assets held by a married couple in a jointly owned account will receive full step up basis when either spouse dies. Although some brokerages do offer a community property account registration option, I believe that it is meaningless in my state.
I hope the attorneys were tax attorneys since the step-up is a tax question. OTOH, ownership of the decedent's property is a state question. Thus, I assume that you live in a Community Property state and hold your property in JTWROS?

I'm surprised that your attorneys did not use the qualifier, 'generally', as in 'Generally, [a]ssets held by a married couple in a jointly owned account will receive full step up basis when either spouse dies.'

The stepped up basis is a federal tax issue, so the state is relevant only to the respect that is it a community property state or not community property (i.e., common law). Moreover, community property is supposed to be that property acquired after the marriage. Property brought into the marriage or inherited during could be construed as JT WROS or Tenants-in-Common and the IRS could dispute the step up in full. (From a practical matter, this probably only matters for really large accounts since it aint' worth the IRS's time to audit 'smaller' accounts, however defined.)

A Comm Prop registration is a federal issue, and a signal to the feds that you are both agreeing that all the property is this account is community property. Much cleaner, IMO, as a brokerage will step up the basis automatically upon presentation of a death cert. Plus, it's easy to do PoD/ToD for secondary heirs.

Absent a Comm Prop registration, it definitely makes sense to have a piece of paper signed by both spouses.

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FIREchief
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by FIREchief » Sat Jun 22, 2019 12:59 pm

Big Dog wrote:
Sat Jun 22, 2019 12:02 pm
I investigated this thoroughly for my community property state, receiving inputs from two experienced attorneys. Assets held by a married couple in a jointly owned account will receive full step up basis when either spouse dies. Although some brokerages do offer a community property account registration option, I believe that it is meaningless in my state.
I hope the attorneys were tax attorneys since the step-up is a tax question. OTOH, ownership of the decedent's property is a state question. Thus, I assume that you live in a Community Property state and hold your property in JTWROS?
I did clearly state that I was in a community property state.
Big Dog wrote:
Sat Jun 22, 2019 12:02 pm
The stepped up basis is a federal tax issue, so the state is relevant only to the respect that is it a community property state or not community property (i.e., common law). Moreover, community property is supposed to be that property acquired after the marriage. Property brought into the marriage or inherited during could be construed as JT WROS or Tenants-in-Common and the IRS could dispute the step up in full.
If property brought into the marriage (or inherited during marriage) is commingled in a JWROS account (or a trust account owned by a joint living trust), doesn't that generally invalidate it's prior "individual" ownership?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Inherited stocks/mutual funds and bump in cost basis.

Post by FIREchief » Sat Jun 22, 2019 1:04 pm

Big Dog wrote:
Sat Jun 22, 2019 12:02 pm
I hope the attorneys were tax attorneys since the step-up is a tax question.
I believe that one of our expert estate attorneys has suggested (at least indirectly) that a "good" estate attorney is likely more qualified with tax issues occurring at or around death than anybody else. If an estate attorney doesn't have a full grasp of tax issues at death, then what good are they? :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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