What to Do with Inherited Stocks (2024)

FAQs

Should you sell or keep inherited stock? ›

If someone decides to keep the inherited stock, it isn't subject to a tax by the Internal Revenue Service. However, there could be tax liabilities if your loved one decides to sell. They must pay capital gains tax on the difference between the stock's value when they acquire it and the amount they sell it for.

Inherited stock doesn't incur capital gains on any growth prior to your inheritance, but any change in value thereafter will likely trigger capital gains taxes when sold.

After providing a death certificate, proof of identity, probate court order, and others, the heir can either transfer the shares into their account or sell the shares for the proceeds. Ultimately, this has the potential to save significant sums of money due to the tax loophole.

If the executor files an estate tax return, they could use an alternate valuation date of up to 6 months from the date of death. When you sell an inherited asset for more than the stepped-up cost basis, it would be counted as a long-term capital gain for tax purposes.

When you inherit you don't generally pay tax, but it does become applicable when you sell the shares, says Gorman.

As a beneficiary, you may be required to pay taxes on your inherited assets in the future. It depends on the types of accounts you receive and what you do with those accounts. Taxable Accounts (Brokerages/Trusts) – Each year, the income you receive from your investments (e.g., dividends and interest) is taxable to you.

Inheritances aren't considered income for federal tax purposes, but subsequent earnings on the inherited assets, including interest income and dividends, are taxable (unless it comes from a tax-free source).

Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.

There is a federal estate tax, however, which is paid by the estate of the deceased. In 2024, the first $13,610,000 of an estate is exempt from the estate tax. A beneficiary may also have to pay capital gains taxes if they sell assets they've inherited, including stocks, real estate or valuables.

If you inherited stocks, mutual funds or other investments in a taxable account, you'll be able to take advantage of a generous tax break known as a step-up in basis. The cost basis for taxable assets, such as stocks and mutual funds, is “stepped up” to the investment's value on the day of the original owner's death.

What to do with stocks when someone dies? ›

To facilitate a transfer, the executor will need a copy of the decedent's will or a letter from the probate court confirming that the beneficiary in question is indeed the person entitled to receive the shares. The executor must then send these documents to a transfer agent, who can complete the transfer of ownership.

The shares may form part of a specific legacy or fall into the residue of the estate. Either way, the representatives of the estate need to contact the company to initiate the transmission of shares. The PRs should approach the company with a grant of probate or letters of administration.

If this stock appreciates, you will also be responsible for paying capital gains tax if/when you sell the stock. Principal distributions given to you as a trust beneficiary will generally not be taxable.

When someone inherits investment assets, the IRS resets the asset's original cost basis to its value at the date of the inheritance. The heir then pays capital gains taxes on that basis. The result is a loophole in tax law that reduces or even eliminates capital gains tax on the sale of these inherited assets.

A Roth IRA is also subject to a five-year inheritance rule. The beneficiary must liquidate the entire value of the inherited IRA by Dec. 31 of the fifth year after the owner's death. No RMDs are required during this five-year period.

For example, if there is a market downturn, you don't want to sell your shares at this time and lock-in losses. Emergency funds allow you to focus on investing for the long term. Most general guides advise three to six months of living expenses in cash before you start investing.

It depends. If a stock price plunges because of a significant and long-term change in the company's outlook, that's a good reason to sell. Virtually all stocks, even the bluest of the blue chips, experience temporary setbacks and then move back upwards. Averaging down in such cases is a strategy to consider.

No, inherited money is not automatically considered community property in California. It only becomes so if your actions lead to that classification. To ensure your inherited money remains separate property, it's crucial to keep it separate from your marital finances.

An investor may also continue to hold if the stock pays a healthy dividend. Generally, though, if the stock breaks a technical marker or the company is not performing well, it is better to sell at a small loss than to let the position tie up your money and potentially fall even further.