Does Vanguard Automatically "Step Up" Your Basis?

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tealeaves
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Does Vanguard Automatically "Step Up" Your Basis?

Post by tealeaves »

I have an individual taxable account (all in Vanguard Total Stock Market) that lists one of my children as sole beneficiary. At my death, is the procedure for asset transfer and establishing the new basis for my heir fairly rapid and seamless (after they receive notification and a death certificate)?
stan1
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by stan1 »

tealeaves wrote: Sun Jun 07, 2020 5:50 pm I have an individual taxable account (all in Vanguard Total Stock Market) that lists one of my children as sole beneficiary. At my death, is the procedure for asset transfer and establishing the new basis for my heir fairly rapid and seamless (after they receive notification and a death certificate)?
Yes, the process may be new to your child but Vanguard handles this many times per day so has some efficiencies in it. Keep in mind it can take awhile to get a death certificate and then it could take 1-2 weeks for Vanguard to get the account set up with the adjusted basis assuming no problems are encountered. I'll let you decide if that's "fairly rapid" or not. If your intent would be for your child to liquidate this account to pay for memorial expenses it probably won't be fast enough. You'd want a cash account for that.
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celia
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by celia »

It's been over 10 years since I settled an estate that had holdings at Vanguard. The split directions and transfer to several beneficiaries were processed by filling out a form for each beneficiary. I'm pretty sure there was a box on the form asking if cost basis should be adjusted due to death (as opposed to divorce or other things). All the transactions took one day after they received the paperwork. The beneficiaries opened accounts at Vanguard or had cash sent to them. There were no transfers to other custodians involved.

Hopefully the executor/ trustee/ beneficiary will know to look for the cost basis adjustment and notify the custodian to correct it if it wasn't yet adjusted.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Gill »

How would Vanguard know the new basis? It might be date of death, alternate valuation or no stepup at at all. It seems to me it is up to the client to advise Vanguard of the new basis.
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Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
TheDDC
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by TheDDC »

Assuming this is a taxable account where basis matters, it would be based on the date of date from the death certificate. You submit this electronically.

Just an FYI if you are one of the lucky ones that dies in a state that requires a waiver of lien on the account, Vanguard follows the letter of the law and you will have to submit the paperwork to your state department of revenue. I am in the process of this now. Submitted late April and still waiting for the receipt to show to Vanguard. They will not transfer the brokerage (taxable) without it. I would definitely consider a joint bank account in your estate planning if immediate cash is needed for your heirs.

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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Gill »

TheDDC wrote: Sun Jun 07, 2020 7:28 pm Assuming this is a taxable account where basis matters, it would be based on the date of date from the death certificate.
You can’t automatically assume this as I posted above
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by abuss368 »

I actually asked a rep this a week or so ago on a telephone call and was told yes.
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FiveK
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by FiveK »

TheDDC wrote: Sun Jun 07, 2020 7:28 pm Assuming this is a taxable account where basis matters, it would be based on the date of date from the death certificate. You submit this electronically.
+1

This is exactly how it worked for me in 2019. No problem at all: the 2019 1099-R I received for selling the inherited fund had the correct basis.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Gill »

abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
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FiveK
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by FiveK »

Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
It's a pretty good default - worked for us. :)
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by abuss368 »

Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
Not sure I follow.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Gill »

abuss368 wrote: Sun Jun 07, 2020 8:20 pm
Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
Not sure I follow.
Did you see my post above? There may be date of death values, alternate valuation or no step up at all. How does Vanguard know?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Big Dog
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Big Dog »

Gill wrote: Sun Jun 07, 2020 8:30 pm
abuss368 wrote: Sun Jun 07, 2020 8:20 pm
Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
Not sure I follow.
Did you see my post above? There may be date of death values, alternate valuation or no step up at all. How does Vanguard know?
Gill
Doesn't listing a beneficiary (under ToD/PoD) at Vanguard automatically use date of death?
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by minesweep »

Just went through the process a few weeks ago for my brother and myself. It took about 8 days for Vanguard to complete the stepped up cost basis process (after the transfer to our accounts took effect). I did an Excel spreadsheet in advance and it agreed with Vanguard's calculation.

In addition to a taxable account there was a small TIRA and an annuity. In addition to the death certificate there was a short certificate (of letters of testamentary) that was required for the annuity. I couldn’t get that short certificate because the court house was shut down due to the coronavirus. Because of the delay in this process Vanguard sent me a letter stating that I must take action soon on the annuity. When I called them to explain the delay they stated that they would make an exception (since all of my sister’s assets went TOD to my brother and me).

Due to the coronavirus the governor of PA has a color system in effect for the state. The red zone just turned yellow for my area on Friday. So I’ll be calling the register of wills at the courthouse tomorrow to see if they are open to set up an appointment (for letters of testamentary).

One other thing PA is one of only 5 states that have an inheritance tax (12% for siblings). They have a 5% discount if paid within 3 months.

Where Not To Die 2019 Map


P.S. I've had experience as an executor previously so we're not using a lawyer for the process of handling the estate because everything is in beneficiary form (Vanguard & one bank account) so no probate process is involved.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by abuss368 »

Gill wrote: Sun Jun 07, 2020 8:30 pm
abuss368 wrote: Sun Jun 07, 2020 8:20 pm
Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
Not sure I follow.
Did you see my post above? There may be date of death values, alternate valuation or no step up at all. How does Vanguard know?
Gill
Good point. Considering how much impact that could potentially have, I would call them.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by BigJohn »

Gill wrote: Sun Jun 07, 2020 7:59 pm
abuss368 wrote: Sun Jun 07, 2020 7:48 pm I actually asked a rep this a week or so ago on a telephone call and was told yes.
Ask them how they know date of death value is the correct basis.
Gill
I did this about 3 years ago and as I recall it the paper form asked if you wanted a stepped up cost basis and then asked about the methodology. Since I was using DoD, I checked that box and didn’t pay a lot of attention to the other options.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Chip »

BigJohn wrote: Sun Jun 07, 2020 11:51 pm I did this about 3 years ago and as I recall it the paper form asked if you wanted a stepped up cost basis and then asked about the methodology. Since I was using DoD, I checked that box and didn’t pay a lot of attention to the other options.
+1

I still have a scan of the form I filled out a few years ago. It was called "Cost Basis Adjustment Form for Inherited Shares". The Vanguard form designation was CBIS. It had options for both date of death and an alternate valuation date.

I just searched for that form at Vanguard but can't seem to find it now.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by afan »

So it could be "automatic" in the sense that Vanguard will record the basis once you specify the date?
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Chip
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Chip »

afan wrote: Mon Jun 08, 2020 8:24 am So it could be "automatic" in the sense that Vanguard will record the basis once you specify the date?
Yes, I think so. Though things could have changed since my experiences.

I still have my 1099-B from the sale of the inherited funds. Cost basis was NOT reported to the IRS. They were reported as long term transactions even though they were sold less than two months after date of death (this is the correct treatment).

I suppose there is a chance that I went in and adjusted the basis myself, but I don't recall doing so.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by dbr »

I think Gill is rightly pointing out that Vanguard will do the appropriate record keeping according to what the responsible person tells them, but they do not offer tax advice or make legal decisions themselves.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by Tubes »

Chip wrote: Mon Jun 08, 2020 4:55 am
BigJohn wrote: Sun Jun 07, 2020 11:51 pm I did this about 3 years ago and as I recall it the paper form asked if you wanted a stepped up cost basis and then asked about the methodology. Since I was using DoD, I checked that box and didn’t pay a lot of attention to the other options.
+1

I still have a scan of the form I filled out a few years ago. It was called "Cost Basis Adjustment Form for Inherited Shares". The Vanguard form designation was CBIS. It had options for both date of death and an alternate valuation date.

I just searched for that form at Vanguard but can't seem to find it now.
Wow, indeed, I cannot find the form too.

I needed this form in 2014 and it saved my bacon. The mistake I made was that as trustee of the trust of my parent, I sold shares after they died, but before I reported it to Vanguard. Whoops. It was an honest mistake. With this form, they readjusted the basis for reporting purposes for the estate.

So, don't make the mistake I made and you'll be fine.

BTW, I didn't just find the form on my own either. They pointed me to it after I called and expressed my concern on how they will calculate basis. They scolded me a bit (after giving condolences) and then pointed me to the form. There used to be a whole page of various forms that now does not exist.
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Re: Does Vanguard Automatically "Step Up" Your Basis?

Post by BigJohn »

afan wrote: Mon Jun 08, 2020 8:24 am So it could be "automatic" in the sense that Vanguard will record the basis once you specify the date?
Yes, I filled out the form to use date of death and a few days later the cost basis was changed to the appropriate value and all future 1099-B’s were based on that going forward.
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