Tax basis upon death question

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Topic Author
nassau34
Posts: 60
Joined: Sun Oct 01, 2023 5:03 am

Tax basis upon death question

Post by nassau34 »

After my father passed away his brokerage accounts remained in his trust for an additional 4 months while things were being sorted out. At the time we were advised to get another tax ID number for his trusts, which we did. After 4 months I inherited some stock. Would the tax basis of the stock be from the date I received the stock out of the trust four months after death, or my father's date of death?
toddthebod
Posts: 6143
Joined: Wed May 18, 2022 12:42 pm

Re: Tax basis upon death question

Post by toddthebod »

nassau34 wrote: Tue Apr 02, 2024 3:13 pm After my father passed away his brokerage accounts remained in his trust for an additional 4 months while things were being sorted out. At the time we were advised to get another tax ID number for his trusts, which we did. After 4 months I inherited some stock. Would the tax basis of the stock be from the date I received the stock out of the trust four months after death, or my father's date of death?
Three possibilities that I can think of:
1. If these were held in an irrevocable trust, it's possible there would be no step up. Review with the attorney. (Seems unlikely based on your comment about getting another tax ID.)
2. Step up on date of death per previous comment.
3. If this is a taxable estate, you can choose an alternate date within six months of death if it reduces the estate tax owed.
Geologist
Posts: 3120
Joined: Fri Jan 02, 2009 6:35 pm

Re: Tax basis upon death question

Post by Geologist »

toddthebod wrote: Tue Apr 02, 2024 3:18 pm
nassau34 wrote: Tue Apr 02, 2024 3:13 pm After my father passed away his brokerage accounts remained in his trust for an additional 4 months while things were being sorted out. At the time we were advised to get another tax ID number for his trusts, which we did. After 4 months I inherited some stock. Would the tax basis of the stock be from the date I received the stock out of the trust four months after death, or my father's date of death?
Three possibilities that I can think of:
1. If these were held in an irrevocable trust, it's possible there would be no step up. Review with the attorney. (Seems unlikely based on your comment about getting another tax ID.)
2. Step up on date of death per previous comment.
3. If this is a taxable estate, you can choose an alternate date within six months of death if it reduces the estate tax owed.
It is not an “alternate date within six months of death”. There is a single alternate date, six months after death (see, for example, the wiki at https://www.bogleheads.org/wiki/Step-up_in_basis). Further, while reducing the amount of federal estate tax owed is a criterion for choosing the alternate date of valuation, it isn’t the only one. The alternate date must also reduce the value of the gross estate.

It would be worth pointing out that a minuscule fraction of estates pay federal estate taxes (the Tax Policy Center estimates that about 7000 estates in 2022 filed an estate tax return and only 4000 owed estate taxes). If the OP’s father’s estate lawyer filed an estate tax return and elected the alternate valuation date, surely the estate lawyer would have told the OP and he would not be asking us. (Federal estate tax returns are not do-it-yourself propositions.)
toddthebod
Posts: 6143
Joined: Wed May 18, 2022 12:42 pm

Re: Tax basis upon death question

Post by toddthebod »

Geologist wrote: Tue Apr 02, 2024 5:23 pm
toddthebod wrote: Tue Apr 02, 2024 3:18 pm
nassau34 wrote: Tue Apr 02, 2024 3:13 pm After my father passed away his brokerage accounts remained in his trust for an additional 4 months while things were being sorted out. At the time we were advised to get another tax ID number for his trusts, which we did. After 4 months I inherited some stock. Would the tax basis of the stock be from the date I received the stock out of the trust four months after death, or my father's date of death?
Three possibilities that I can think of:
1. If these were held in an irrevocable trust, it's possible there would be no step up. Review with the attorney. (Seems unlikely based on your comment about getting another tax ID.)
2. Step up on date of death per previous comment.
3. If this is a taxable estate, you can choose an alternate date within six months of death if it reduces the estate tax owed.
It is not an “alternate date within six months of death”. There is a single alternate date, six months after death (see, for example, the wiki at https://www.bogleheads.org/wiki/Step-up_in_basis). Further, while reducing the amount of federal estate tax owed is a criterion for choosing the alternate date of valuation, it isn’t the only one. The alternate date must also reduce the value of the gross estate.

It would be worth pointing out that a minuscule fraction of estates pay federal estate taxes (the Tax Policy Center estimates that about 7000 estates in 2022 filed an estate tax return and only 4000 owed estate taxes). If the OP’s father’s estate lawyer filed an estate tax return and elected the alternate valuation date, surely the estate lawyer would have told the OP and he would not be asking us. (Federal estate tax returns are not do-it-yourself propositions.)
You can force an earlier date by distributing the assets.
Topic Author
nassau34
Posts: 60
Joined: Sun Oct 01, 2023 5:03 am

Re: Tax basis upon death question

Post by nassau34 »

Geologist wrote: Tue Apr 02, 2024 5:23 pm
toddthebod wrote: Tue Apr 02, 2024 3:18 pm
nassau34 wrote: Tue Apr 02, 2024 3:13 pm After my father passed away his brokerage accounts remained in his trust for an additional 4 months while things were being sorted out. At the time we were advised to get another tax ID number for his trusts, which we did. After 4 months I inherited some stock. Would the tax basis of the stock be from the date I received the stock out of the trust four months after death, or my father's date of death?
Three possibilities that I can think of:
1. If these were held in an irrevocable trust, it's possible there would be no step up. Review with the attorney. (Seems unlikely based on your comment about getting another tax ID.)
2. Step up on date of death per previous comment.
3. If this is a taxable estate, you can choose an alternate date within six months of death if it reduces the estate tax owed.
It is not an “alternate date within six months of death”. There is a single alternate date, six months after death (see, for example, the wiki at https://www.bogleheads.org/wiki/Step-up_in_basis). Further, while reducing the amount of federal estate tax owed is a criterion for choosing the alternate date of valuation, it isn’t the only one. The alternate date must also reduce the value of the gross estate.

It would be worth pointing out that a minuscule fraction of estates pay federal estate taxes (the Tax Policy Center estimates that about 7000 estates in 2022 filed an estate tax return and only 4000 owed estate taxes). If the OP’s father’s estate lawyer filed an estate tax return and elected the alternate valuation date, surely the estate lawyer would have told the OP and he would not be asking us. (Federal estate tax returns are not do-it-yourself propositions.)
Thanks guys. There was no estate tax return (or alternative date). It sounds like I should go with his date of death for the basis. I'm wrestling with this right now because one stock was disposed of in 2023 and I'm handling it for my taxes. If the IRS takes exception I'll update my return based on whatever guidance they provide.
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