Cost basis for inherited stock with reinvested dividends?

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gensuki
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Location: Virginia

Cost basis for inherited stock with reinvested dividends?

Post by gensuki » Thu Mar 14, 2019 2:17 pm

My husband inherited a stock from his mother’s trust. It had reinvestment option turned on. His mother died January 2013. The stock was transferred to DH in December 2014. He sold all the stock in 2018. Since his mother died in January 2013 and the transfer was done in December 2014, should he separate out the reinvested dividends of 2013-2014 that occurred while the stock was still in the trust and compute the cost basis of those shares separately? So the cost basis should be:
  • Shares at the time of death times the stock price at the time of death (stepped up basis) plus
  • Sum of the reinvested dividends
Is this right? DH thinks everything prior to transfer in December 2014 should have cost basis based on time of death.

Your advice would be greatly appreciated. Thank you!

not4me
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Re: Cost basis for inherited stock with reinvested dividends?

Post by not4me » Fri Mar 15, 2019 5:42 am

I'll give this thread a bump, but I don't think anyone can confidently answer this without more questions being answered. Unfortunately, I don't think I know all the questions to ask. The standard answer is to ask the trustee.

The type of trust can matter, how/when the assets were put in the trust, reason they were distributed, etc I think can all affect this. For example, were the assets gifted to the trust before death? Revocable or irrevocable? Is trust still in existence? The cost basis is not always stepped up. As for the reinvesting...again, may be important to understand how the trust treated them during the time it held them. That is, did the trust pay tax on it during 2013? Were the distributions indeed all dividends (not return of capital, etc)?

Hopefully, someone like Gill will weigh in, but this potentially could be real complicated (or real simple). I've not tried to be comprehensive & exhaustive. This might be a good candidate to ask a pro -- if complicated, it will be necessary; if simple, won't cost much. At this point, may want to get an extension on filing if you don't already work with a qualified tax person & get it done right 1st time.

Gill
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Re: Cost basis for inherited stock with reinvested dividends?

Post by Gill » Fri Mar 15, 2019 6:08 am

OP is correct. The shares held at date of death receive a stepped up basis equivalent to the mean market value on that date. The reinvested shares have a basis equal to their actual cost. I am assuming the trust was his mother’s revocable trust.
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

Topic Author
gensuki
Posts: 83
Joined: Thu Apr 13, 2017 1:11 pm
Location: Virginia

Re: Cost basis for inherited stock with reinvested dividends?

Post by gensuki » Fri Mar 15, 2019 2:20 pm

Yes, it was his mother's revocable trust. Thank you for your answer.

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BL
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Re: Cost basis for inherited stock with reinvested dividends?

Post by BL » Fri Mar 15, 2019 5:06 pm

I have confidence in Gill's input.

This thread should be required reading for those who want to hang onto inherited funds/stocks for no good reason. It would simplify things a lot to sell ASAP after death and also not reinvest those dividends.

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