Cost Basis for Inherited Shares

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GeekGal
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Cost Basis for Inherited Shares

Post by GeekGal » Fri Sep 13, 2019 7:44 pm

Dear Bogleheads,

My husband passed away in January 2019. Prior to his passing, he and I were joint account holders to a brokerage account. Upon his death, Vanguard had me complete a Transfer on Death form, and transfer the funds to a new brokerage account they had me open (so that I am the person listed on the account for Tax ID purposes henceforth).

I called Vanguard a while ago and a representative told me 50% of the equity shares are automatically stepped up in cost basis as of the date of his passing, and offered a form called, "Cost Basis Adjustment Form for Inherited Shares" in the event I want to change the cost basis for the shares.

The shares were purchased with joint funds (community property) and I live in California, a community property state. I am thinking it would be in my best interest to complete the form so that 100% of the equity shares are adjusted such that when sold, I get the stepped up basis. I have not sold any shares to-date, and do not plan to do so in the near term (I am 38 years old and plan to hold them for the foreseeable future).

1. Does anyone have experience with this?
2. Is there a reason why I would not ask for adjustment of 100% of the shares based on the date of his passing? It seems to me that 100% would be best.
3. Is there is time frame / deadline within which I must complete this form/request?

Thanks in advance. I found this forum very recently. I really like it here and appreciate your collective wisdom and support.

-GeekGal

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dwickenh
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Location: Illinois

Re: Cost Basis for Inherited Shares

Post by dwickenh » Fri Sep 13, 2019 8:05 pm

I went through this in Illinois this year on a joint account with my wife. Vanguard was great about handling the 50% step up basis in cost for the
shares owned jointly. I do not think that all of the shares get a step up basis unless the account was only in his name with you as the beneficiary.
I am not familiar with California law so there may be more to it in your state.

Sorry for your loss.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Gill
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Re: Cost Basis for Inherited Shares

Post by Gill » Fri Sep 13, 2019 8:14 pm

dwickenh wrote:
Fri Sep 13, 2019 8:05 pm
I went through this in Illinois this year on a joint account with my wife. Vanguard was great about handling the 50% step up basis in cost for the
shares owned jointly. I do not think that all of the shares get a step up basis unless the account was only in his name with you as the beneficiary.
I am not familiar with California law so there may be more to it in your state.

Sorry for your loss.

Dan
Illinois law has no application to California which is a community property state. OP, you are entitled to a 100% stepup in basis and you should have the basis of all shares changed to reflect this.
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

increment
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Re: Cost Basis for Inherited Shares

Post by increment » Fri Sep 13, 2019 8:19 pm

First, although one hopes that the basis will be stepped up, the law actually says that the basis is changed at the date of death, even if that results in a step down.

Second, for tax-reporting purposes, I believe that the basis adjustment is not optional. It takes effect whether or not you ask your broker to do anything about it. If you ask your broker to adjust their records, then when you sell their 1099 forms will be correct. If you don't, you will need to keep track and put some entries in the appropriate tax-form columns when you sell.

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dwickenh
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Re: Cost Basis for Inherited Shares

Post by dwickenh » Fri Sep 13, 2019 8:19 pm

Thanks Gill for the clarification.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Gill
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Re: Cost Basis for Inherited Shares

Post by Gill » Fri Sep 13, 2019 8:23 pm

increment wrote:
Fri Sep 13, 2019 8:19 pm
First, although one hopes that the basis will be stepped up, the law actually says that the basis is changed at the date of death, even if that results in a step down.

Second, for tax-reporting purposes, I believe that the basis adjustment is not optional. It takes effect whether or not you ask your broker to do anything about it. If you ask your broker to adjust their records, then when you sell their 1099 forms will be correct. If you don't, you will need to keep track and put some entries in the appropriate tax-form columns when you sell.
Correct. It’s not optional. If it was you would elect the higher amount. No such luck.
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

Dovahkiin
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Re: Cost Basis for Inherited Shares

Post by Dovahkiin » Fri Sep 13, 2019 8:30 pm

If the executor files an estate tax return on his behalf then the executor can elect the stock basis to be the market value six months after his death. That should help you avoid the new year stock dip. Talk to a CPA if doing this is worthwhile.

Gill
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Re: Cost Basis for Inherited Shares

Post by Gill » Fri Sep 13, 2019 8:33 pm

Dovahkiin wrote:
Fri Sep 13, 2019 8:30 pm
If the executor files an estate tax return on his behalf then the executor can elect the stock basis to be the market value six months after his death. That should help you avoid the new year stock dip. Talk to a CPA if doing this is worthwhile.
Another misunderstanding often cited here. This is only true if the alternate value of the gross estate is lower than date of death and also the estate tax is reduced. Very restrictive and rare to apply. Nearly all estates are limited to date of death values.
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

bltn
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Re: Cost Basis for Inherited Shares

Post by bltn » Fri Sep 13, 2019 9:46 pm

Gill wrote:
Fri Sep 13, 2019 8:33 pm
Dovahkiin wrote:
Fri Sep 13, 2019 8:30 pm
If the executor files an estate tax return on his behalf then the executor can elect the stock basis to be the market value six months after his death. That should help you avoid the new year stock dip. Talk to a CPA if doing this is worthwhile.
Another misunderstanding often cited here. This is only true if the alternate value of the gross estate is lower than date of death and also the estate tax is reduced. Very restrictive and rare to apply. Nearly all estates are limited to date of death values.
Gill
Useful information. Thanks Gill.

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abuss368
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Re: Cost Basis for Inherited Shares

Post by abuss368 » Fri Sep 13, 2019 10:19 pm

I am sorry to hear about the loss. I would file the paperwork to adjust for the increase in the step up of cost basis. Vanguard has always tracked cost basis for their funds over the years.

God bless you and your family.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!"

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