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Post by chang on Aug 8, 2021 21:56:34 GMT
I believe that the cost basis of an individual's assets, including stocks, funds, etc., are reset to their value on the day of death, so that heirs do not inherit any embedded profit (or loss).
Question: do you send a death certificate to the brokerage company and request them to amend the cost basis? Because the controlling heir(s) will probably sell or move the securities: either way, the brokerage company would be keeping the old cost basis and this cost basis would show up on the 1099 form for that tax year.
An erroneous 1099 form would be a pain to deal with in the tax return, because the filer would have to research the values of all the securities on the day of death, etc., and make a bunch of changes. The brokerage company should do that before the 1099 is issued.
At some point the controlling heirs will close (or change ownership) of the account, in which case I'm sure the brokerage company will want to see a death certificate. But my specific question is about how the cost basis reset is actually implemented. TIA.
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Post by yogibearbull on Aug 8, 2021 22:48:53 GMT
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Post by paulr888 on Aug 8, 2021 23:53:22 GMT
I believe that the cost basis of an individual's assets, including stocks, funds, etc., are reset to their value on the day of death, so that heirs do not inherit any embedded profit (or loss). Question: do you send a death certificate to the brokerage company and request them to amend the cost basis? Because the controlling heir(s) will probably sell or move the securities: either way, the brokerage company would be keeping the old cost basis and this cost basis would show up on the 1099 form for that tax year. An erroneous 1099 form would be a pain to deal with in the tax return, because the filer would have to research the values of all the securities on the day of death, etc., and make a bunch of changes. The brokerage company should do that before the 1099 is issued. At some point the controlling heirs will close (or change ownership) of the account, in which case I'm sure the brokerage company will want to see a death certificate. But my specific question is about how the cost basis reset is actually implemented. TIA. Chang, let me share my experience. When my dad died, my mom went to her estate attorney in 2005 and an Exemption Trust was created as part of an updated 3 part Trust (Survivor, Marital and Exemption). The Exemption Trust is an irrevocable "bypass trust" I believe. The assets in Exemption Trust (rentals, stock etc) got step up basis when my dad died but does not get step up when my mom dies. When the tax law changed in 2012 we could have revoked the irrevocable and fix this but we did not. The trust attorney was asleep at the switch and we did not know better. The attorney I have chatted with described my mom's trust as a "broken trust", could have been fixed but too late now as my mom has dementia. This is a lot of information but my message would be to see if there is a Trust Document and make sure it does not over-ride the step up in cost basis as it is doing in my mom's Trust.
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Post by chang on Aug 8, 2021 23:59:57 GMT
Thanks yogibearbull (especially for those links, which I will save/print out since the broker in question happens to be Fido) and thanks paulr888 . YBB, a clear lesson to make sure that every account has a named beneficiary(ies)! In the case at hand (incidentally, I am thinking about a scenario which will take place at some future date; not now) there is fortunately no complicated trust structure. There are simply two accounts, a taxable account (JWROS joint with me) and an IRA. (There is also real estate, but for that there are no 1099s so I am not so concerned about the cost basis "step up" issue.) There should be no legal issues. There is no spouse. And thanks for sharing your experience.
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Post by Capital on Aug 9, 2021 0:00:43 GMT
Just to clarify, under current law for appreciated property at death there are separate basis for gain and loss. The basis for gain is in fact FMV; however, the basis for loss is the original cost to the decedent. For sales between these two basis amounts neither gain or loss is recognized.
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Post by fishingrod on Aug 9, 2021 0:18:08 GMT
If you put a T.O.D. (transfer on death) on the Title of the real estate, or JWROS, then it may also escape probate.
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Post by chang on Aug 9, 2021 0:23:47 GMT
If you put a T.O.D. (transfer on death) on the Title of the real estate, or JWROS, then it may also escape probate. The JWROS definitely should escape probate. So should the real estate, since there is a trust and a will that clearly specify beneficiaries. The sum total will not reach the Federal estate tax limit. However, it might breach the Mass. estate tax limit; if so, there's nothing to be done about it. They don't call it Taxachusetts for nothing.
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Post by liftlock on Aug 9, 2021 2:02:16 GMT
If you put a T.O.D. (transfer on death) on the Title of the real estate, or JWROS, then it may also escape probate. The JWROS definitely should escape probate. So should the real estate, since there is a trust and a will that clearly specify beneficiaries. The sum total will not reach the Federal estate tax limit. However, it might breach the Mass. estate tax limit; if so, there's nothing to be done about it. They don't call it Taxachusetts for nothing. I am not a lawyer, but it is my understanding that probate will not be avoided when title to real estate passes to a beneficiary via a will. www.policygenius.com/wills/what-is-probate/
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Post by fishingrod on Aug 9, 2021 2:08:57 GMT
T.O.D's, P.O.D's, and 401K, Annuity or Life insurance beneficiary designations all will over ride any Will or Trust designations. So make sure they match as to avoid any cornfusion.
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Post by chang on Aug 9, 2021 2:16:46 GMT
The JWROS definitely should escape probate. So should the real estate, since there is a trust and a will that clearly specify beneficiaries. The sum total will not reach the Federal estate tax limit. However, it might breach the Mass. estate tax limit; if so, there's nothing to be done about it. They don't call it Taxachusetts for nothing. I am not a lawyer, but it is my understanding that probate will not be avoided when title to real estate passes to a beneficiary via a will. www.policygenius.com/wills/what-is-probate/You could be right, but the link says "Assets in a trust are managed and distributed separately from probate according to the terms of the trust." I am already the named executor in the trust. I will raise these questions when I check in with our attorney, but I don't think it will ever get in front of a court. I don't anticipate any issues with any other beneficiaries (but one never knows...). The main issues I need to understand are tax-related. I don't want to divide everything up, and then discover a year later that a hefty tax bill is due. As an aside, I wonder: does the deceased have to file one last tax return, where estate and other taxes are paid? What happens if they don't, and their assets are simply distributed among the beneficiaries according to the will/trust?
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Post by yogibearbull on Aug 9, 2021 2:42:45 GMT
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Post by chang on Aug 9, 2021 2:53:35 GMT
When the banks/brokerages learn of death, they pretty much freeze everything. Depending on the timeframe and how the assets are titled, beneficiaries/executors may have to submit some or all of the proof of death, the probate settlement, or small-estate quick settlement when trusts are Does this mean that joint account owners, individuals with POA, etc. would not be able to trade, move, sell or distribute assets? I find that hard to imagine. In our case, the individual in question has a taxable investment account, an IRA, and various real estate. The will and trust specify that everything be liquidated and the proceeds divided among three beneficiaries in equal thirds. It is very simple. The real estate will take time, of course, to sell. However, the taxable investment account can be liquidated and distributed immediately. Likewise, the IRA can be converted into beneficiary IRAs as soon as the beneficiaries are able to contact Fidelity and initiate the process. However, again, there is a potential tax implication. It might be prudent to withhold some cash from the taxable account to cover taxes, as well as legal and other expenses incurred by me as the executor. Obviously I do not expect to get final answers here, and I will be consulting our attorney. (Unfortunately the family attorney is in her 70s, and I cannot be assured that she will be able to handle our business indefinitely. It would suck to have to find a new attorney at the time when the eventual transition takes place.)
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Post by liftlock on Aug 9, 2021 3:12:23 GMT
Thanks yogibearbull (especially for those links, which I will save/print out since the broker in question happens to be Fido) and thanks paulr888 . YBB, a clear lesson to make sure that every account has a named beneficiary(ies)! In the case at hand (incidentally, I am thinking about a scenario which will take place at some future date; not now) there is fortunately no complicated trust structure. There are simply two accounts, a taxable account (JWROS joint with me) and an IRA. (There is also real estate, but for that there are no 1099s so I am not so concerned about the cost basis "step up" issue.) There should be no legal issues. There is no spouse. And thanks for sharing your experience. Fidelity will require an official copy of death certificate before they will transfer assets to any designated beneficiary. Typically the executor or administrator of the estate would obtain and provide the death certificate to the Estate Department at Fidelity. The Estate department folks at Fidelity were quite helpful to my wife who was executor for her mother's estate. Once Fidelity has a master official death certificate on file, then each designated beneficiaries has to fill out paperwork to claim the assets they have inherited. This includes providing satisfactory proof to Fidelity about their identity. As I recall, Fidelity required each designated beneficiary to set up an Fidelity account to receive the inherited assets. Once the beneficiaries credentials are validated, Fidelity transfers the assets from the account of the deceased to the the account of the beneficiary. Since Fidelity has the death certificate on file, it automatically sets the cost basis of the transferred assets to their market value on the date of death. In the case of my mother in laws designated beneficiaries, no form to establish the stepped up cost basis was required. In the case of an inherited IRA, Fidelity will calculate required minimum distributions for the beneficiary as required by law. If the IRA has a cost basis, then the executor of the estate will need to provide that information to the beneficiary by looking at the deceased tax records / Federal and State tax returns. This information is reported on IRS Form 8606 (including possible filings on older returns if the deceased hasn't commenced taking RMDs. ) In the case of my mother in law, each beneficiary was responsible for taking any Required Minimum Distributions not taken by the deceased before they died. Rules for inherited IRA's have changed and I am not sure if this still applies but I suspect it might.
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Post by chang on Aug 9, 2021 3:21:51 GMT
I don't think Fidelity will need to do the distribution, as far as the taxable account goes. It is a JWROS and I am the joint owner. The liquidated assets can be moved into my bank account and I can distribute them. Or to the decedent's bank account, on which both I and my sister are joint owners. All these bank accounts are already linked to the Fido account.
As I noted, some funds should probably be withheld for taxes and expenses.
The IRA — yes, I will advise all beneficiaries to contact Fidelity to open beneficiary IRAs. I will probably sell all assets to cash on or shortly after the day of passing, so there won't be any non-cash securities to be concerned about.
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Post by liftlock on Aug 9, 2021 3:27:10 GMT
liftlock probably meant that assets mentioned only in the Will will not avoid probate. They must be titled within proper trusts to avoid probate and shouldn't even be mentioned in the Will (and if mentioned, that would be irrelevant). Exceptions are minor items in pour-over-Will that are within the small-estate limits of states. YBB, Yes that is exactly what I meant. Thank your for clarifying that. And to your other point, if the assets aren't properly titled to the proper trust, I believe they may end up passing through the will and being subject to probate. I have read that this is common estate planning oversight / error. People set up trusts and never retitle their assets to be owned by the trust.
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Post by paulr888 on Aug 9, 2021 3:33:51 GMT
When the banks/brokerages learn of death, they pretty much freeze everything. Depending on the timeframe and how the assets are titled, beneficiaries/executors may have to submit some or all of the proof of death, the probate settlement, or small-estate quick settlement when trusts are Does this mean that joint account owners, individuals with POA, etc. would not be able to trade, move, sell or distribute assets? I find that hard to imagine. In our case, the individual in question has a taxable investment account, an IRA, and various real estate. The will and trust specify that everything be liquidated and the proceeds divided among three beneficiaries in equal thirds. It is very simple. The real estate will take time, of course, to sell. However, the taxable investment account can be liquidated and distributed immediately. Likewise, the IRA can be converted into beneficiary IRAs as soon as the beneficiaries are able to contact Fidelity and initiate the process. However, again, there is a potential tax implication. It might be prudent to withhold some cash from the taxable account to cover taxes, as well as legal and other expenses incurred by me as the executor. Obviously I do not expect to get final answers here, and I will be consulting our attorney. (Unfortunately the family attorney is in her 70s, and I cannot be assured that she will be able to handle our business indefinitely. It would suck to have to find a new attorney at the time when the eventual transition takes place.) Chang, I am glad to read the bold. I was almost going to ask you, but I deleted my question.
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Post by liftlock on Aug 9, 2021 4:12:44 GMT
I don't think Fidelity will need to do the distribution, as far as the taxable account goes. It is a JWROS and I am the joint owner. The liquidated assets can be moved into my bank account and I can distribute them. Or to the decedent's bank account, on which both I and my sister are joint owners. All these bank accounts are already linked to the Fido account. As I noted, some funds should probably be withheld for taxes and expenses. The IRA — yes, I will advise all beneficiaries to contact Fidelity to open beneficiary IRAs. I will probably sell all assets to cash on or shortly after the day of passing, so there won't be any non-cash securities to be concerned about. Typically an estate bank account is established by the executor in the name of the deceased with a new tax ID. Assets of the deceased are transferred to the estate bank account by the executor as accounts are liquidated and permitted by law. The executor uses the estate bank account to pay taxes, legal fees, other obligations of the deceased, executor fees, and to distribute funds to beneficaries. The Estate bank account is liquidated after acceptance of any required estate tax returns and upon final distribution of funds to the beneficaries. In the case of JWROS account, it might make sense to transfer the decedents share of assets to the estate bank account. I believe the decedents share of a of a JWROS account will be included in the value of their estate.
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Post by liftlock on Aug 9, 2021 4:39:38 GMT
When the banks/brokerages learn of death, they pretty much freeze everything. Depending on the timeframe and how the assets are titled, beneficiaries/executors may have to submit some or all of the proof of death, the probate settlement, or small-estate quick settlement when trusts are Does this mean that joint account owners, individuals with POA, etc. would not be able to trade, move, sell or distribute assets? I find that hard to imagine. In our case, the individual in question has a taxable investment account, an IRA, and various real estate. The will and trust specify that everything be liquidated and the proceeds divided among three beneficiaries in equal thirds. It is very simple. The real estate will take time, of course, to sell. However, the taxable investment account can be liquidated and distributed immediately. Likewise, the IRA can be converted into beneficiary IRAs as soon as the beneficiaries are able to contact Fidelity and initiate the process. However, again, there is a potential tax implication. It might be prudent to withhold some cash from the taxable account to cover taxes, as well as legal and other expenses incurred by me as the executor. Obviously I do not expect to get final answers here, and I will be consulting our attorney. (Unfortunately the family attorney is in her 70s, and I cannot be assured that she will be able to handle our business indefinitely. It would suck to have to find a new attorney at the time when the eventual transition takes place.) Here is my take on this. Joint account owners can continue to do everything. Powers of Attorney, ability to trade, sell, move and distribute assets for all non-joint accounts are likely to expire on date of death. Executor / administrator is empowered to sell move and liquidate assets which pass through the will once the court approves the appointment of the executor / administrator. This requires filing documents with the court which may not happen overnight. Trustees would be empowered to handle assets owned by or passing to the trust. I am not sure about the process for trusts. The estate department at Fidelity can probably answer your questions as they are the gate keepers.
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Post by chang on Aug 9, 2021 4:40:27 GMT
liftlock All that makes sense, except I will probably use her existing bank account. No point opening a new one.
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Post by liftlock on Aug 9, 2021 4:51:47 GMT
liftlock All that makes sense, except I will probably use her existing bank account. No point opening a new one. If you have to file an estate tax return a new tax ID and estate bank account may be required for that. The Estate tax return is not filed using the tax ID / SSN of the deceased. The final tax return is filed using the tax ID / SSN of the deceased. Beyond that it may be prudent to process all estate matters through a separately auditable estate account.
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Post by liftlock on Aug 9, 2021 5:58:54 GMT
You could be right, but the link says "Assets in a trust are managed and distributed separately from probate according to the terms of the trust." I am already the named executor in the trust. I will raise these questions when I check in with our attorney, but I don't think it will ever get in front of a court. I don't anticipate any issues with any other beneficiaries (but one never knows...). The main issues I need to understand are tax-related. I don't want to divide everything up, and then discover a year later that a hefty tax bill is due. As an aside, I wonder: does the deceased have to file one last tax return, where estate and other taxes are paid? What happens if they don't, and their assets are simply distributed among the beneficiaries according to the will/trust? As YBB clarified, I was referring to assets not held in or passing through a trust. Only assets passing through a will or in the absence of a will would be subject to probate. Assets held by a trust are not subject to probate. Typically the executor of the estate files the final income tax return for the deceased using the deceased taxpayer ID for the tax year of the taxpayers death. Typically the executor of the estate is approved by the court as someone who is authorized to act of behalf of the deceased. Then there are potential and separate income and tax returns for the Trust and for the Estate, along with potential estate tax returns - all while the estate is in process of being settled. Typically funds would not be distributed to beneficiaries until any estate tax return has been accepted. When my mother in law died in New Jersey, financial institutions were not allowed to release funds until the executor provided proof that her estate tax obligations had been satisfied. Each state will have a unique set of rules and process to follow. Your estate lawyer or an accountant should be able to advise you on the requirements for your state.
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Post by chang on Aug 9, 2021 6:06:12 GMT
Obviously I'm going to have to book a long appointment with our lawyer when I get home. Wills, trusts, estates ... a lot of things to put in order.
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Post by Chahta on Aug 21, 2021 2:13:01 GMT
Step up cost is one thing Biden has mentioned as a target to change. That would be a severe tax consequence for many.
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Post by fishingrod on Aug 21, 2021 2:26:31 GMT
I have set aside roughly 10% of total portfolio to pay for duties and administration of estate after death and last taxes. I have estimated the costs and designated a liquid acct. to pay for these last costs. Just my way.
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Post by Chahta on Aug 21, 2021 5:50:00 GMT
Step up cost is one thing Biden has mentioned as a target to change. That will be a severe tax consequence for many.
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