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Post by chang on Apr 3, 2023 11:40:40 GMT
A family member has passed away and I am the executor of the estate. Real estate properties will be sold in due course, but there is also a stock portfolio. The cost basis has been stepped up (Fidelity handled this very quickly and efficiently.)
I am tempted to sell the stocks immediately and leave the proceeds in a money market fund, which fortunately now has a decent yield. Regrettably the major stock (STT) is down 15% in the last month, although up 25% over the last 6 months.
The account will be liquidated and used to pay estate tax (and then distributed to beneficiaries) probably within one year.
It seems to me that not selling the stocks and keeping the proceeds in a money market would be nothing more than market timing and speculation. I don't think that's a risk that I should take on behalf of the other beneficiaries.
If anyone else has been through this process, I'd appreciate feedback on their experience.
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Post by fishingrod on Apr 3, 2023 11:58:09 GMT
Been there done that.
I think you are correct in your thoughts. It will preserve the assets in the estate, which is your job now, not to grow the assets.
That being said if the beneficiaries would rather inherit the stock, (which would make your job more difficult) you could have them open an account with Fidelity and I am sure that the stock could then be transferred to the benes' with their stepped up cost basis. Good luck.
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Post by chang on Apr 3, 2023 12:15:17 GMT
Thanks FR. The beneficiaries have essentially zero investing experience or interest. I will gladly assist them with advice later on, but I think that transferring them shares of the existing stocks would not be the right thing to do.
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Post by habsui on Apr 3, 2023 17:20:40 GMT
Went through this with my MIL.
We sold everything within a couple of weeks.
Note that even after step-up, any additional gains are taxed as long term cap gains.
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Post by retiredat48 on Apr 3, 2023 20:44:47 GMT
Note that even after step-up, any additional gains are taxed as long term cap gains. Have a reference or source for this. Interesting. TIA R48 |
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Post by fishingrod on Apr 3, 2023 20:52:00 GMT
Note that even after step-up, any additional gains are taxed as long term cap gains. Have a reference or source for this. Interesting. TIA R48
Even if assets were acquired days before death, they are stepped up and are treated as long term held assets for the beneficiaries.
We went over this some time before and I provided links from IRS I believe it was. But I am busy right now and can't search for them.
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Post by fishingrod on Apr 3, 2023 23:08:39 GMT
www.hrblock.com/tax-center/income/investments/holding-period/"Inheritances — Your holding period is automatically considered to be more than one year. So, when you sell the inherited stock, it’s subject to long-term capital treatment. This applies regardless of the actual holding period."
"When inherited property that is a capital asset is disposed of, the taxpayer has a long-term gain or loss regardless of how long they held the property."
I can not find the reference from the IRS. Sorry I looked but no luck.
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Post by archer on Apr 3, 2023 23:59:50 GMT
What if the asset paid qualified divs in the past year? My understanding is that qualified divs have to have been distributed over a year ago before being sold at LTCG rate.
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Post by fishingrod on Apr 4, 2023 0:06:03 GMT
What if the asset paid qualified divs in the past year? My understanding is that qualified divs have to have been distributed over a year ago before being sold at LTCG rate.
"Holding periods
Although the holding period requirement is the same whether you received a dividend for shares you hold directly or in a mutual fund during the tax year, how you determine the holding period may vary, as outlined below.
Note: When counting the number of days the fund was held, include the day the fund was disposed of, but not the day it was acquired.
Mutual funds
All of the following requirements must be met:
The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
For certain preferred stock, the security must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date. The amount received by the fund from that dividend-generating security must have been subsequently distributed to you.
You must have held the applicable share of the fund for at least 61 days out of the 121-day period that began 60 days before the fund’s ex-dividend date.
Stock
You must have held those shares of stock unhedged for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
For certain preferred stock, the security must be held for 91 days out of the 181-day period beginning 90 days before the ex-dividend date."
Sorry for being off topic.
Fishingrod
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Post by Fearchar on Apr 4, 2023 0:07:27 GMT
Are the beneficiaries already named as beneficiaries in the Fidelity account?
If so, then you should be able to avoid moving those thru probate.
The real estate probably needs to go thru probate and you'll need an attorney for that.
Hopefully, there aren't any surprise debtors out there.
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Post by fishingrod on Apr 4, 2023 0:21:08 GMT
Are the beneficiaries already named as beneficiaries in the Fidelity account? If so, then you should be able to avoid moving those thru probate. The real estate probably needs to go thru probate and you'll need an attorney for that. Hopefully, there aren't any surprise debtors out there.
Any T.OD. or P.O.D or any other beneficiary document including Annuities/Insurance or Brokers supersede the Will/Trust.
The real estate may/will usually escape probate if the property has been titled in the name of a valid Trust.
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Post by chang on Apr 4, 2023 0:47:51 GMT
Everything is in trusts, no issues there. Our attorney and accountants will be involved in the process.
I actually sold all the assets to cash (MM) today. I believe I owe it to the beneficiaries not to take any risk of loss of principal, regardless of my own investing approach or thoughts about the future direction of the market.
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Post by fishingrod on Apr 4, 2023 1:26:00 GMT
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Post by Fearchar on Apr 4, 2023 10:54:07 GMT
Everything is in trusts, no issues there. Our attorney and accountants will be involved in the process. I actually sold all the assets to cash (MM) today. I believe I owe it to the beneficiaries not to take any risk of loss of principal, regardless of my own investing approach or thoughts about the future direction of the market. Here is the rub. The broker will report that sale on a 1099. Unless the account has already been retitled, it will be reported under the deceased SS number. You are responsible to ensure taxes are filed and paid on that account. I hope you have already talked with the estate dept at the broker about this. Ideally, the cost basis needs to be adjusted based on the date of death or next business day. Not sure if there is a tax form associated with this or not. |
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Post by fishingrod on Apr 4, 2023 12:09:00 GMT
The stepped up cost basis should reflect what is reported on the estate Federal tax return.
"Under the new law passed by Congress in 2015, an accuracy-related penalty may apply if an individual reporting the sale of certain inherited property uses a basis in excess of that property’s final value for Federal estate tax purposes."
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Post by chang on Apr 4, 2023 12:50:22 GMT
Of course tax returns need to be filed for the decedent up to the final estate tax return. A good accountant firm we have used for over 30 years will manage this.
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Post by Chahta on Apr 4, 2023 13:21:36 GMT
I have discussed this with my mom. She believes the three of us kids should keep the portfolio and split it. It has served her well for income. However my concern would be what it would do to our income taxes. Might need an adjustment to the holdings since it would be the time at the step-up.
What do the other beneficiaries think?
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Post by Fearchar on Apr 4, 2023 13:30:10 GMT
Of course tax returns need to be filed for the decedent up to the final estate tax return. A good accountant firm we have used for over 30 years will manage this. My point was that you need to contact the estate deptartment of the broker. Sounds like you may have traded in the deceased persons account before letting them know. They will need death cert at a minimum. They have tons of experience too. |
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Post by chang on Apr 4, 2023 14:11:28 GMT
Of course tax returns need to be filed for the decedent up to the final estate tax return. A good accountant firm we have used for over 30 years will manage this. My point was that you need to contact the estate deptartment of the broker. Sounds like you may have traded in the deceased persons account before letting them know. They will need death cert at a minimum. They have tons of experience too. All of that was done, as I said in the OP. They would not have stepped up the cost basis without the death cert. |
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Post by chang on Apr 4, 2023 14:15:16 GMT
I have discussed this with my mom. She believes the three of us kids should keep the portfolio and split it. It has served her well for income. However my concern would be what it would do to our income taxes. Might need an adjustment to the holdings since it would be the time at the step-up. What do the other beneficiaries think? The previously existing portfolio was totally unsuitable for anyone. A cash disbursement is the only sensible option (same as will happen when properties are eventually sold). The brokerage account will remain open (holding only MM) for a period of time as a source of funds to pay expenses and the estate tax, which must be filed within 9 months. |
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Post by johntaylor on Apr 4, 2023 22:21:30 GMT
Selling to MM was the right move.
The exec/PR of an estate where I was a beneficiary did not sell despite relevant stocks sitting at multi-year highs.
Legatees were not happy as the process unfolded with the speed of Jarndyce v Jarndyce and the stocks lost steadily.
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Post by retiredat48 on Apr 5, 2023 3:31:48 GMT
www.hrblock.com/tax-center/income/investments/holding-period/"Inheritances — Your holding period is automatically considered to be more than one year. So, when you sell the inherited stock, it’s subject to long-term capital treatment. This applies regardless of the actual holding period."
"When inherited property that is a capital asset is disposed of, the taxpayer has a long-term gain or loss regardless of how long they held the property."
I can not find the reference from the IRS. Sorry I looked but no luck.
,...thanks |
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Post by liftlock on Apr 8, 2023 1:27:56 GMT
Everything is in trusts, no issues there. Our attorney and accountants will be involved in the process. I actually sold all the assets to cash (MM) today. I believe I owe it to the beneficiaries not to take any risk of loss of principal, regardless of my own investing approach or thoughts about the future direction of the market. Here is the rub. The broker will report that sale on a 1099. Unless the account has already been retitled, it will be reported under the deceased SS number. You are responsible to ensure taxes are filed and paid on that account. I hope you have already talked with the estate dept at the broker about this. Ideally, the cost basis needs to be adjusted based on the date of death or next business day. Not sure if there is a tax form associated with this or not. |
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Post by liftlock on Apr 8, 2023 2:00:13 GMT
When my MIL passed away, Fidelity set up a new account for her estate using a new a new taxpayer ID that was issued for the estate. Shortly after her death, her assets held at Fidelity were transferred to the new estate account and held there until they could be distributed by the executor to the beneficiaries of the estate. Estate tax returns had to be filed, taxes paid, and the tax returns had to be accepted by the state. The state placed a tax lien on each of the deceased accounts which limited the portion of the account that could be distributed until the estate tax return was accepted by the state. During this time some of the financial assets were liquidated to pay the estate taxes. Any gains on the sale of any assets in the estate account were reported on the income tax returns for the estate. A final estate tax return was filed to report the final liquidation of the estate. A final tax return was made for the deceased in her own taxpayer ID for the year she died. As I recall it reflected income through the date of death. I think income after the date of death was reported on the estate tax returns. The entire process, involved probate, took about 2 years to complete.
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Post by Fearchar on Apr 8, 2023 10:53:26 GMT
When my MIL passed away, Fidelity set up a new account for her estate using a new a new taxpayer ID that was issued for the estate. Shortly after her death, her assets held at Fidelity were transferred to the new estate account and held there until they could be distributed by the executor to the beneficiaries of the estate. Estate tax returns had to be filed, taxes paid, and the tax returns had to be accepted by the state. The state placed a tax lien on each of the deceased accounts which limited the portion of the account that could be distributed until the estate tax return was accepted by the state. During this time some of the financial assets were liquidated to pay the estate taxes. Any gains on the sale of any assets in the estate account were reported on the income tax returns for the estate. A final estate tax return was filed to report the final liquidation of the estate. A final tax return was made for the deceased in her own taxpayer ID for the year she died. As I recall it reflected income through the date of death. I think income after the date of death was reported on the estate tax returns. The entire process, involved probate, took about 2 years to complete. I'm guessing that your MIL was single when she passed. However, I'm curious to know what state she lived in. Also wondering if this is unique to Fidelity. That is was the Fidelity account all by itself over the states threshold? I'm no lawyer, but probate laws must vary by state. Also thought that broker accounts with beneficiaries don't need to go thru probate. But maybe that's only with a spouse or maybe that's only with retirement accounts... lots to learn here I'm sure. Fidelity was the most difficult broker that I dealt with following my father's passing. In the 1990's I had a 401K with Fidelity. My employer moved it to other providers since then and I forget all about that old plan. Fidelity though found the old account (there was $5 still in it) and linked my Mom's account to it. So, I have to log onto my old account in order to view/trade in my Mom's accounts. However, it's restricted and I can not see who the Beneficiaries are. Then they sent me a notice that I had to vouch that the beneficiaries were correct! Hello!!! The other brokers; USAA, Schwab and TDAmeritrade allowed me to register the accounts with my Mom's SS# and have me listed as an authorized person or something like that and at least I can see who the beneficiaries are. |
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Post by liftlock on Apr 8, 2023 19:12:53 GMT
When my MIL passed away, Fidelity set up a new account for her estate using a new a new taxpayer ID that was issued for the estate. Shortly after her death, her assets held at Fidelity were transferred to the new estate account and held there until they could be distributed by the executor to the beneficiaries of the estate. Estate tax returns had to be filed, taxes paid, and the tax returns had to be accepted by the state. The state placed a tax lien on each of the deceased accounts which limited the portion of the account that could be distributed until the estate tax return was accepted by the state. During this time some of the financial assets were liquidated to pay the estate taxes. Any gains on the sale of any assets in the estate account were reported on the income tax returns for the estate. A final estate tax return was filed to report the final liquidation of the estate. A final tax return was made for the deceased in her own taxpayer ID for the year she died. As I recall it reflected income through the date of death. I think income after the date of death was reported on the estate tax returns. The entire process, involved probate, took about 2 years to complete. I'm guessing that your MIL was single when she passed. However, I'm curious to know what state she lived in. Also wondering if this is unique to Fidelity. That is was the Fidelity account all by itself over the states threshold? I'm no lawyer, but probate laws must vary by state. Also thought that broker accounts with beneficiaries don't need to go thru probate. But maybe that's only with a spouse or maybe that's only with retirement accounts... lots to learn here I'm sure. Fidelity was the most difficult broker that I dealt with following my father's passing. In the 1990's I had a 401K with Fidelity. My employer moved it to other providers since then and I forget all about that old plan. Fidelity though found the old account (there was $5 still in it) and linked my Mom's account to it. So, I have to log onto my old account in order to view/trade in my Mom's accounts. However, it's restricted and I can not see who the Beneficiaries are. Then they sent me a notice that I had to vouch that the beneficiaries were correct! Hello!!! The other brokers; USAA, Schwab and TDAmeritrade allowed me to register the accounts with my Mom's SS# and have me listed as an authorized person or something like that and at least I can see who the beneficiaries are. Yes my MIL was single and widowed when she passed away. She lived in New Jersey. NJ had a fairly low estate tax exemption threshold at the time of her death, which has since been raised. NJ placed the tax lien on her assets where title did not transfer automatically upon her death via POD. The lien was applied to her Fidelity and bank accounts. By NJ law, financial institution's were prohibited from releasing a certain portion of funds to beneficiaries until NJ provided forms indicating it was ok. This had nothing to do with whether assets went through probate. The law was designed to make sure estate taxes were filed and paid based on her total assets, some of which went through probate while others going directly to beneficiaries. Fidelity had an estate department that was very helpful. Probate is a sperate process from estate tax, where the court approves the proposed distribution of the assets to the rightful heirs. Assets with a designated beneficiary including those that are payable on death would bypass probate. |
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Post by chang on Apr 8, 2023 23:34:53 GMT
All assets are held in trusts, so I expecting to bypass probate completely. Anyway, both our attorneys and accountants will be managing the process.
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