What to do with Inherited Assets?

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Collectingnuts
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What to do with Inherited Assets?

Post by Collectingnuts »

Let's start with theory before getting detailed. For the past several years I have been working to simplify my investment and retirement assets using a good deal of advice from the Bogleheads. Recently, I received inheritance in the form of assets held in traditional IRAs, Roth IRAs, and taxable accounts. All of these assets were held in one of 6 different trusts and transferred to my ML account to either an inherited Roth IRA, inherited Traditional IRA, or my CMA. The assets were definitely selected for an income portfolio with lots of municipal bond ladders, utilities, treasury notes, and ETFs focused on dividends. Obviously this is not great for a taxable account, not c/w my financial plan, and I have 75+ holdings.

I would like to hear suggestions on the most tax efficient way to simplify. I realize there should not be any tax implications for the retirement accounts so no problems there, but the CMA account is holding a majority of the assets. Do I just sell everything or what?
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simplesimon
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Re: What to do with Inherited Assets?

Post by simplesimon »

Collectingnuts wrote: Wed Jan 29, 2025 1:20 pm Let's start with theory before getting detailed. For the past several years I have been working to simplify my investment and retirement assets using a good deal of advice from the Bogleheads. Recently, I received inheritance in the form of assets held in traditional IRAs, Roth IRAs, and taxable accounts. All of these assets were held in one of 6 different trusts and transferred to my ML account to either an inherited Roth IRA, inherited Traditional IRA, or my CMA. The assets were definitely selected for an income portfolio with lots of municipal bond ladders, utilities, treasury notes, and ETFs focused on dividends. Obviously this is not great for a taxable account, not c/w my financial plan, and I have 75+ holdings.

I would like to hear suggestions on the most tax efficient way to simplify. I realize there should not be any tax implications for the retirement accounts so no problems there, but the CMA account is holding a majority of the assets. Do I just sell everything or what?
You should have a stepped up cost basis so when you sell tax impacts will be minimal. If so, sell and reinvest in an allocation that aligns with yours.
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Re: What to do with Inherited Assets?

Post by retired@50 »

Collectingnuts wrote: Wed Jan 29, 2025 1:20 pm Let's start with theory before getting detailed. For the past several years I have been working to simplify my investment and retirement assets using a good deal of advice from the Bogleheads. Recently, I received inheritance in the form of assets held in traditional IRAs, Roth IRAs, and taxable accounts. All of these assets were held in one of 6 different trusts and transferred to my ML account to either an inherited Roth IRA, inherited Traditional IRA, or my CMA. The assets were definitely selected for an income portfolio with lots of municipal bond ladders, utilities, treasury notes, and ETFs focused on dividends. Obviously this is not great for a taxable account, not c/w my financial plan, and I have 75+ holdings.

I would like to hear suggestions on the most tax efficient way to simplify. I realize there should not be any tax implications for the retirement accounts so no problems there, but the CMA account is holding a majority of the assets. Do I just sell everything or what?
Presumably the cost basis was updated on the taxable holdings based on the date of death of the decedent... Was it?

If so, then you should be able to sell many of the holdings with a small gain or loss based on what's happened with the price since the date of death. This presents a rare opportunity to get rid of holdings that don't meet your criteria with minimal tax consequences.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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Re: What to do with Inherited Assets?

Post by arcticpineapplecorp. »

you should have received a step up in basis which means the cost basis of the assets in question (in taxable account) are the value as of the date of death of the original account owner. If you received the assets not long after the person's death, it's possible there may be very little gains (and even possibly losses depending on the investment) therefore, there may not be a big tax impact right now, but the longer you wait, there could be more of a tax impact later). So first figure out the cost basis of all the assets (hopefully the broker determined that based on values of assets at time of death of original account owner) then look at the current values and see if there are gains/losses in each holding (or lot) and the amount of gains in total. That will better inform you of any amount of taxes you might own as a result of selling these assets that may have increased in value since the orignal account owner's death.

does that make sense?

sorry for your loss.

regarding the most tax efficient way of investing, in taxable, invest in stock index funds and keep fixed income in the retirement accounts.

if you want more specific advice there, post according to asking portfolio questions
Last edited by arcticpineapplecorp. on Wed Jan 29, 2025 1:31 pm, edited 1 time in total.
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HomeStretch
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Re: What to do with Inherited Assets?

Post by HomeStretch »

Is your ML account an AUM account or DIY on the Merrill Edge platform?

Identify the unrealized gain/loss for the inherited holdings in the Taxable account. If you received a basis step up, the gain may be low enough keep tax costs low for exchanging all holdings right now. If the current holdings are high ER, exchanging into low-cost funds will reduce ERs and offset the taxes paid on the exchanges.

As step 1, you can turn off automatic reinvestment of dividends/capital gain distributions and sell Taxable tax lots with a loss or no/small gain.
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Re: What to do with Inherited Assets?

Post by arcticpineapplecorp. »

HomeStretch wrote: Wed Jan 29, 2025 1:30 pm As step 1, you can turn off automatic reinvestment of dividends/capital gain distributions and sell Taxable tax lots with a loss or no/small gain.
this.

and make sure your taxable lots are set up as SpecID which makes it easier to identify the lots you want to sell and/or keep.
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Collectingnuts
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

I thought this would be the case as well but apparently assets which are held in irrevocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
Last edited by Collectingnuts on Mon Feb 03, 2025 10:02 am, edited 1 time in total.
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Re: What to do with Inherited Assets?

Post by HomeStretch »

What is the total unrealized gain on the 75 holdings that you don’t want to keep?

Does the tax on selling all now move you up in the capital gain/ordinary income tax brackets? ER savings can reduce the tax cost.

You need to do the detailed work.
Last edited by HomeStretch on Wed Jan 29, 2025 1:38 pm, edited 1 time in total.
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Re: What to do with Inherited Assets?

Post by retired@50 »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
In that case, just decide how much in capital gains you're willing to recognize in any given tax year and sell the investments that are the least desirable to hold from your perspective. I'm thinking you'd be selling any fund with a high expense ratio, or a fund that isn't tax-efficient (bond funds, REITs, actively managed funds with annual cap gains distributions all come to mind).

Regards,
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

HomeStretch wrote: Wed Jan 29, 2025 1:35 pm What is the total unrealized gain on the 75 holdings that you don’t want to keep?

Does the tax on selling all now move you up in the capital gain/ordinary income tax brackets? ER savings can reduce the tax cost.

You need to do the detailed work.
[ quote fixed by admin LadyGeek]

The total unrealized is close to 70K. Definitely need to do detailed work. I could likely estimate my marginal tax bracket for 2025 and see if there is room for capital gains. I guess it would be good practice for when I retire and want to do Roth conversions. My guess is it would push me up a bracket. I also would rather the capital be working within my financial plan. I have 7yrs to retirement.
Last edited by Collectingnuts on Mon Feb 03, 2025 10:04 am, edited 1 time in total.
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Re: What to do with Inherited Assets?

Post by HomeStretch »

Collectingnuts wrote: Wed Jan 29, 2025 1:45 pm
HomeStretch wrote: Wed Jan 29, 2025 1:35 pm What is the total unrealized gain on the 75 holdings that you don’t want to keep?

Does the tax on selling all now move you up in the capital gain/ordinary income tax brackets? ER savings can reduce the tax cost.

You need to do the detailed work.
The total unrealized is close to 80K. Definitely need to do detailed work. I could likely estimate my marginal tax bracket for 2025 and see if there is room for capital gains. I guess it would be good practice for when I retire and want to do Roth conversions. My guess is it would push me up a bracket. I also would rather the capital be working within my financial plan. I have 7yrs to retirement.
Sounds like a plan. Modeling in tax software is definitely helpful to understand how much space you have.

When I moved my parents’ AUM Taxable account with high ERs and 55 positions, I took the cleanup in steps:
(1) turned off reinvestment, sold tax lots with a loss/small gain,
(2) identified the high ER funds and sold some to stay within the same tax bracket. If you have any tax loss carryforwards from 2024, that will help.
(3) worked on reducing everything else. This included taking advantage of a market downturn.
Last edited by HomeStretch on Wed Jan 29, 2025 2:05 pm, edited 1 time in total.
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

My account is Self directed. I will turn of the reinvestments, good point. Mom passed almost a year ago and with many trusts and family members involved it took 10 months. We also had a darn good year in the market last year. I am looking at capital gains for sure. It also looks like the Advisor was trading after the DOD because some of them are short term and not just reinvests. I have a lot of work to to here.

I am going to ask specific advise going forward so I will open a new thread in the portfolio advice forum if that is appropriate.
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

When I moved my parents’ AUM Taxable account with high ERs and 55 positions, I took the cleanup in steps:
(1) turned off reinvestment, sold tax lots with a loss/small gain,
(2) identified the high ER funds and sold some to stay within the same tax bracket. If you have any tax loss carryforwards from 2024, that will help.
(3) worked on reducing everything else. This included taking advantage of a market downturn.
[/quote]

This sounds just about right!
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Re: What to do with Inherited Assets?

Post by Pete12 »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm ... apparently assets which are held in revocable trust do not receive the stepped up cost basis ...
I am no expert but I thought assets in revocable trusts got the stepped up basis:
viewtopic.php?t=422661
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Re: What to do with Inherited Assets?

Post by bsteiner »

Assets in most trusts don't get a new basis when someone dies. However, assets in some trusts, such as marital (QTIP) trusts, do.

You should ask the lawyer handling the most recent decedent's estate whether the assets in any of the trusts received a new basis upon his/her death.
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Re: What to do with Inherited Assets?

Post by popoki »

Don't commingle assets.
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Re: What to do with Inherited Assets?

Post by psteinx »

Collectingnuts wrote: Wed Jan 29, 2025 1:20 pm The assets were definitely selected for an income portfolio with lots of municipal bond ladders, utilities, treasury notes, and ETFs focused on dividends. Obviously this is not great for a taxable account, not c/w my financial plan, and I have 75+ holdings.
Obviously it matters (in taxable accounts) whether or not your basis is stepped up, and how much if any gain (as a %) the different assets have.

That said:

1) Some of these things (munis, treasury-notes) have maturity dates of their own and will liquidate at some point. T-notes should be quite liquid, so to the extent you don't want them and they don't have much if any gain in them, just sell them. Munis can be illiquid, and in general the desireability of holding them will tie into things like your longer term marginal tax-rates and whether you live in a state with a state income tax, and if so, whether the munis are for that state (i.e. they're NY muni bonds and you're a New Yorker, say). You may want to let them mature/get called or liquidate and maybe take a bit of a loss on the transaction cost/spread.

2) ETFs should be very liquid, so if they're not suitable for your plans and/or you want simplicity, AND the gains are small, just sell them. Be aware that even if there are gains, you may see yourself get further locked in if the market continues to go up in years ahead.

3) Utilities - I assume you mean US utility stocks. If they're medium/large cap then they're kinda like ETFs and should be fairly liquid. Holding these is not necessarily so bad, though they'll likely throw off dividends at a higher rate than a TSM fund.
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Re: What to do with Inherited Assets?

Post by Artsdoctor »

bsteiner wrote: Wed Jan 29, 2025 2:16 pm Assets in most trusts don't get a new basis when someone dies. However, assets in some trusts, such as marital (QTIP) trusts, do.

You should ask the lawyer handling the most recent decedent's estate whether the assets in any of the trusts received a new basis upon his/her death.
Can you please clarify? When the grantor of a revocable trust dies, I thought that there is a step-up in basis on the date of death. Irrevocable trusts are different, of course.
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Re: What to do with Inherited Assets?

Post by celia »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
All trusts become irrevocable upon death of the grantor but if any were living trusts (ie, revocable while living), then those are eligible for the step-up. (You are eligible to get copies of the trusts if you were a named beneficiary. This is a great opportunity for you to learn about trusts, 6 no less!)

If the current trustee(s) worked with a lawyer, they should know which were revocable.

And even if the custodian(s) didn't give you a step-up as of date of death for the eligible trusts, you can still benefit from it when doing your taxes. You would have to look-up the date of death values first. Then when doing your 2025 taxes, you first enter the cost basis and selling price that will appear on the tax statement next January. Then there will be a question like "Is this information correct?" When you answer "no", then you can update the cost basis with the reason being "death". Doing this will show the IRS that you both match what is on the tax form as well as what the correct info is. (The IRS wants the correct tax owed, no more, no less.)

Look for the question when you prepare your 2024 taxes.

Update:
Any assets sold after death are considered long term gains/ losses (except anything an advisor or trustee was tinkering with as they already should have taken the step-up).
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Re: What to do with Inherited Assets?

Post by tibbitts »

Artsdoctor wrote: Wed Jan 29, 2025 2:28 pm
bsteiner wrote: Wed Jan 29, 2025 2:16 pm Assets in most trusts don't get a new basis when someone dies. However, assets in some trusts, such as marital (QTIP) trusts, do.

You should ask the lawyer handling the most recent decedent's estate whether the assets in any of the trusts received a new basis upon his/her death.
Can you please clarify? When the grantor of a revocable trust dies, I thought that there is a step-up in basis on the date of death. Irrevocable trusts are different, of course.
I thought a revocable trust received a step-up, even though I guess technically there is no such thing as a revocable trust after death since it becomes irrevocable at the time of death?
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

Pete12 wrote: Wed Jan 29, 2025 2:11 pm
Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm ... apparently assets which are held in revocable trust do not receive the stepped up cost basis ...
I am no expert but I thought assets in revocable trusts got the stepped up basis:
viewtopic.php?t=422661
It may have been irrevocable. There were both and the ML advisor explicitly said the assets going to my CMA account could not be stepped up.
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

tibbitts wrote: Wed Jan 29, 2025 2:39 pm
Artsdoctor wrote: Wed Jan 29, 2025 2:28 pm

Can you please clarify? When the grantor of a revocable trust dies, I thought that there is a step-up in basis on the date of death. Irrevocable trusts are different, of course.
I thought a revocable trust received a step-up, even though I guess technically there is no such thing as a revocable trust after death since it becomes irrevocable at the time of death?
I just confirmed the CMA account assets were irrevocable so no step-up
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Re: What to do with Inherited Assets?

Post by celia »

Collectingnuts wrote: Wed Jan 29, 2025 2:05 pm I am going to ask specific advise going forward so I will open a new thread in the portfolio advice forum if that is appropriate.
Please don't start a new thread as it is better to keep all your posts on a topic together. Besides if someone notices it is similar to this thread, a moderator will move the new thread back to here.

Collectingnuts wrote: Wed Jan 29, 2025 1:45 pm The total unrealized is close to 80K. Definitely need to do detailed work.
It is very unlikely your share of her bonds would have earned 80K in a year. This looks like no-one requested the step-up.

You (or the trustee) need to find out which trusts were revocable before your mom's death and who/why someone was tinkering with the assets.
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Re: What to do with Inherited Assets?

Post by bsteiner »

Artsdoctor wrote: Wed Jan 29, 2025 2:28 pm
bsteiner wrote: Wed Jan 29, 2025 2:16 pm Assets in most trusts don't get a new basis when someone dies. However, assets in some trusts, such as marital (QTIP) trusts, do.

You should ask the lawyer handling the most recent decedent's estate whether the assets in any of the trusts received a new basis upon his/her death.
Can you please clarify? When the grantor of a revocable trust dies, I thought that there is a step-up in basis on the date of death. Irrevocable trusts are different, of course.
You are correct. Assets in a revocable trust usually get a new basis at death.

Assets in an irrevocable trust may or may not get a new basis upon a beneficiary's death.
celia wrote: Wed Jan 29, 2025 2:31 pm ...
And even if the custodian(s) didn't give you a step-up as of date of death for the eligible trusts, you can still benefit from it when doing your taxes. ...
Custodians don't give you a new basis. Congress gives you a new basis in some cases. See Internal Revenue Code Section 1014.
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Re: What to do with Inherited Assets?

Post by delamer »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
I was in the same situation. Frankly, it is frustrating that so many on this forum continue to assume that all inherited taxable accounts “should” or will get a step-up in basis. That is probably the most common scenario, but it is not the only one.

Do you have the cost basis and current value for each individual investment? That’s the first step in coming up with a plan.

Once I had that information, I sold off all small positions and those with minimal capital gains that I had inherited. So, for example, those only worth a few $1,000 total or where the gains were $1,000 or $2,000. That cleared out several positions to make it easier to evaluate the remainder of the portfolio.

Then I concentrated on getting rid of shares of positions that were a big part of the portfolio. I had one utility stock that probably was 15%-20% of the portfolio value. I sold some of those shares and also gifted some to my adult children. I didn’t divest it all at once, but I did reduce its weight in the portfolio pretty quickly.

Also, there were a few positions that I chose to keep for several years, like a Vanguard intermediate bond fund.

Finally, you should look at the inherited holdings in terms of your overall portfolio allocation, particularly if you have the same goal for the inherited accounts as for the remainder of your portfolio. So if everything is earmarked for retirement then consider that in your allocation. However if the inherited funds are earmarked for college or second home, then consider thrm separately.

You can use a an online tax calculator to determine the impact of various selling scenarios.

I only inherited about 25 positions, so my task wasn’t quite as daunting as yours.

Good luck. It’s a process.
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Re: What to do with Inherited Assets?

Post by tibbitts »

bsteiner wrote: Wed Jan 29, 2025 3:16 pm Custodians don't give you a new basis. Congress gives you a new basis in some cases. See Internal Revenue Code Section 1014.
I think the intent was to say the custodian reported the new basis rather than "gave" it. What happened in my case was that I recorded the asset values on the day-of-death. Then later when the custodian transferred the assets to a new account for me, and after the tax year ended, they reported the sales "correctly", or at least based on the same values I had recorded. But I never thought whether that would have occurred even if the assets hadn't been entitled to a step-up. Is the general experience that custodians will handle this correctly, or not?
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

tibbitts wrote: Wed Jan 29, 2025 3:27 pm
bsteiner wrote: Wed Jan 29, 2025 3:16 pm Custodians don't give you a new basis. Congress gives you a new basis in some cases. See Internal Revenue Code Section 1014.
I think the intent was to say the custodian reported the new basis rather than "gave" it. What happened in my case was that I recorded the asset values on the day-of-death. Then later when the custodian transferred the assets to a new account for me, and after the tax year ended, they reported the sales "correctly", or at least based on the same values I had recorded. But I never thought whether that would have occurred even if the assets hadn't been entitled to a step-up. Is the general experience that custodians will handle this correctly, or not?
I would hope so. Has anyone experienced otherwise?
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Re: What to do with Inherited Assets?

Post by mhadden1 »

Collectingnuts wrote: Wed Jan 29, 2025 1:45 pm My guess is it would push me up a bracket.
The capital gains stack on top of your regular income without affecting the regular income bracket. The CG rate goes from 0% to 15% to 20%. The 20% kicks in around $500K so your $80k will hopefully fit below that. The 3.8% Net Investment Income Tax surcharge starts around $200k of income so it would be best to try to avoid that if possible. It will take a little work to form a plan of attack.
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

OK looking at the assets and gains it looks like the majority is coming from about 10 stocks and ETFs, and most of the rest 6 Mutual funds. There are CDs and GOV bonds, and no less than 20 Munis but they are not contributing much to gains. It looks like 72K gains mostly long term if I want to take care of the stocks and ETFs. One of the ETFs (NOBL) is a S&P500 fund with an ER of 38 points and has to go. The other is SPY which is fine at 09.

The CDs and Gov bonds are fairly short and I could just allow to mature. The Munis seem to go on forever. I would be carrying them into my retirement LOL. There is also a good deal of the overall capital tied up in these munis which I would like to put to work. Any suggestions?
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

The capital gains stack on top of your regular income without affecting the regular income bracket. The CG rate goes from 0% to 15% to 20%. The 20% kicks in around $500K so your $80k will hopefully fit below that. The 3.8% Net Investment Income Tax surcharge starts around $200k of income so it would be best to try to avoid that if possible. It will take a little work to form a plan of attack.
Thanks for the advice. I actually forgot CG does not affect your marginal income bracket. I have to educate myself on the Net Investment income tax. I am not familiar.
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Re: What to do with Inherited Assets?

Post by afan »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
I do not believe this is correct. Were these in irrevocable trusts, in which case it would make sense?

Or is it that there have been large gains between the date of death and now? If the latter, then there is nothing you can do to avoid the taxes if you sell. I probably would not hold onto a portfolio that is inappropriate just to escape the taxes. But get clarity on the basis, which could be 6 months after death, rather than date of death. Get clarity on the kind of trust and stepped up basis. Work the tax implications for both valuation dates. It seems you have looked carefully at the holdings and they are not what you eant to hold.
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Re: What to do with Inherited Assets?

Post by afan »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
I do not believe this is correct. Were these in irrevocable trusts, in which case it would make sense?

Or is it that there have been large gains between the date of death and now? If the latter, then there is nothing you can do to avoid the taxes if you sell. I probably would not hold onto a portfolio that is inappropriate just to escape the taxes. But get clarity on the basis, which could be 6 months after death, rather than date of death. Get clarity on the kind of trust and stepped up basis. Work the tax implications for both valuation dates. It seems you have looked carefully at the holdings and they are not what you want to hold.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
psteinx
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Re: What to do with Inherited Assets?

Post by psteinx »

Collectingnuts wrote: Wed Jan 29, 2025 4:30 pm The Munis seem to go on forever. I would be carrying them into my retirement LOL. There is also a good deal of the overall capital tied up in these munis which I would like to put to work. Any suggestions?
What state(s) are the munis for? What state are you in? What's your typical marginal federal rate, in normal years (it may get pushed a little higher with transactions relating to this inheritance).

How big are the different lots of munis? $10K? $50K? $100K?
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Artsdoctor
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Re: What to do with Inherited Assets?

Post by Artsdoctor »

Collectingnuts wrote: Wed Jan 29, 2025 4:41 pm The capital gains stack on top of your regular income without affecting the regular income bracket. The CG rate goes from 0% to 15% to 20%. The 20% kicks in around $500K so your $80k will hopefully fit below that. The 3.8% Net Investment Income Tax surcharge starts around $200k of income so it would be best to try to avoid that if possible. It will take a little work to form a plan of attack.
Thanks for the advice. I actually forgot CG does not affect your marginal income bracket. I have to educate myself on the Net Investment income tax. I am not familiar.
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This thread has become extremely confusing because you originally described the trust as a revocable trust. Evidently, the trust you inherited was not a revocable trust when the grantor died, but was set up (or later became) a irrevocable trust prior to death. Please consider editing your post describing the post as revocable.

An irrevocable trust has a different tax structure and it might be more expensive for you to sell certain assets if there was no step up in basis. I would recommend that you get a CPA involved, at least to get you started on the right track.
bowerynation86
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Re: What to do with Inherited Assets?

Post by bowerynation86 »

Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
I haven’t read the whole thread so maybe this was addressed
but stocks coming from a revocable trust do get a stepped up basis.
I would talk to a knowledgeable accountant that deals with trusts.
I have found many people give inaccurate information on such topics.
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Collectingnuts
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

celia wrote: Wed Jan 29, 2025 2:31 pm
Collectingnuts wrote: Wed Jan 29, 2025 1:32 pm I thought this would be the case as well but apparently assets which are held in revocable trust do not receive the stepped up cost basis and as such there are significant tax implications. I confirmed this with the ML advisor prior to the transfer to my CMA account. It has to do with what kind of trust the assets were held in.
All trusts become irrevocable upon death of the grantor but if any were living trusts (ie, revocable while living), then those are eligible for the step-up. (You are eligible to get copies of the trusts if you were a named beneficiary. This is a great opportunity for you to learn about trusts, 6 no less!)

If the current trustee(s) worked with a lawyer, they should know which were revocable.

And even if the custodian(s) didn't give you a step-up as of date of death for the eligible trusts, you can still benefit from it when doing your taxes. You would have to look-up the date of death values first. Then when doing your 2025 taxes, you first enter the cost basis and selling price that will appear on the tax statement next January. Then there will be a question like "Is this information correct?" When you answer "no", then you can update the cost basis with the reason being "death". Doing this will show the IRS that you both match what is on the tax form as well as what the correct info is. (The IRS wants the correct tax owed, no more, no less.)

Look for the question when you prepare your 2024 taxes.

Update:
Any assets sold after death are considered long term gains/ losses (except anything an advisor or trustee was tinkering with as they already should have taken the step-up).
Thanks for the advice. Unfortunately the far majority of assets with gains were in irrevocable trusts prior to DOD. It certainly is good to know there is a way to address it at tax time if I find something incorrect.
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Collectingnuts
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Re: What to do with Inherited Assets?

Post by Collectingnuts »

psteinx wrote: Wed Jan 29, 2025 4:56 pm
Collectingnuts wrote: Wed Jan 29, 2025 4:30 pm The Munis seem to go on forever. I would be carrying them into my retirement LOL. There is also a good deal of the overall capital tied up in these munis which I would like to put to work. Any suggestions?
What state(s) are the munis for? What state are you in? What's your typical marginal federal rate, in normal years (it may get pushed a little higher with transactions relating to this inheritance).

How big are the different lots of munis? $10K? $50K? $100K?
Great questions TY. The bonds are from all over the country it seems. I am in MA and there is not one bond from MA. Our tax bracket will just touch 35%. The lots really vary median around 5K but range from 2K to 20K.
psteinx
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Re: What to do with Inherited Assets?

Post by psteinx »

I suspect you're mistaken about $2K lots - munis usually trade in smallest increment of $5K (though if something was trading at 40% of face value, it could have a value of $2K).

If you sell them, you'll take a hit to their "true value", since small lots of munis trade on wide spreads. And your tax rate is high enough that it may be worthwhile to keep them. That said, for simplifying your tax returns and portfolio in general, it may be worthwhile to sell. You can request bids on some of the lots and see how bad the bids are (relative to other recent trades and just generally what the YtW (yield to worst) on the offers are.
swak
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Re: What to do with Inherited Assets?

Post by swak »

I haven’t read the entire thread, but I have experienced the issues the OP has inquired about. I inherited assets (taxable brokerage, IRAs) in 2018. One parent passed in 2002, and the 2nd parent passed in 2018, leaving all assets in an irrevocable trust. There were about 9 financial institutions containing about 25 accounts to be split between 4 children. I found that about 1/3 did not step up the basis automatically, as I had expected. I learned this by noticing that there was a tiny cost basis in comparison to a large unrealized capital gains. Most of the financial institutions corrected this after I pointed it out. A few, namely DSW (formerly Scudder), dragged this out for months I repeatedly called them about this. One customer rep for DSW even suggested that I simply claim what I thought was the cost basis when I sold the funds (there were 6 of them). I told her that would cause a dispute with the IRS that would last for years, and wouldn’t it be better if they simply stepped up the cost basis upon date of death? Finally, after multiple transfers to various supervisors, I received a screenshot of the corrected cost basis.

My efforts saved me a lot of taxes. Trust, but verify.
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