||Ask the Dollar Diva
Taking stock of inheritance
Dear Dollar Diva,
My wife died this year with several stocks held in her trust, with
me as the beneficiary of the trust. What would the cost basis of
those stocks if I were to sell them?
The basis is the amount you would report on your individual
tax return as the "cost" when you sell the stock. There are two
Stepped-up or stepped-down basis: The amount
you report as "cost" is the market value of the stock at the date
of your wife's death.
This generally occurs when stock is inherited, and
the value of the stock is included in the decedent's estate for
estate tax purposes even if no estate taxes are required.
Carried-over basis: The amount your wife would
have reported as "cost" if she had lived is the same amount you
would report as "cost" when you sell the stock.
Carried-over basis usually occurs when stock is received
as a gift. It can also occur when inherited stock is not included
in the decedent's estate for estate tax purposes because, for example,
the decedent had only a life income interest in the trust and never
personally owned the stocks.
Ron Aucutt, an estate tax attorney with McGuire, Woods,
Battle & Boothe LLP, in McLean, Va., says he would need to know
what kind of trust your wife had to determine the stock basis. He's
suggesting two possible scenarios:
1. The stock will have a stepped-up or stepped-down
basis if the trust is a revocable living trust with the following
The trust is set up by your wife, who is the beneficiary
until her death.
You become the remainder beneficiary, or you receive
the stock outright when she dies.
The value of the stock is included in her estate
for estate tax purposes, even though there will be no estate
tax due on the stocks passed on to you.
There is an exception: If any of the stocks in the
trust were given to her by you within one year of her death, the
basis of those stocks would be carried-over.
2. The stock will have a carried-over basis if the
trust had the following characteristics:
The trust was set up by someone else, perhaps
Your wife is the beneficiary until her death.
The Dollar Diva reminds you that the stepped-up feature
of appreciated stocks makes them a sweet way to remember your loved
ones when you die.
-- Posted: Oct. 5, 1999