People who inherit stocks and bonds are often concerned about the amount of taxes that they will have to pay on those assets. They are not necessarily right to do so as they do not have to pay much of anything.
A common confusion for heirs is what it means for their tax bills when they inherit stocks or bonds. Many assume they will need to pay federal taxes on the value of those securities at the time they are inherited.
As Money discusses in "I Inherited Stocks. How Can I Reduce the Taxes I Owe?," people who inherit securities do not have to pay anything on them right away. If the total value of the deceased's estate exceeds $5.45 million, then estate taxes are owed. But the estate pays those before any inheritances are distributed to heirs.
Heirs also inherit securities with what is known as a step-up basis. That means heirs inherit assets with a new basis - the value on the decedent’s date of death, not the date the decedent originally purchased them.
Thus, if the inherited securities are sold right away, then no taxes are due on them unless sold for more than the date of death value.
Consequently, it is possible capital gains tax might have to be paid if the securities are held for long enough for them to increase in value. Carefully choosing when to sell the securities can minimize those taxes.
If you have questions about taxation on any asset you inherit, it is a good idea to ask your Cincinnati estate attorney.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Money (Oct. 4, 2016) "I Inherited Stocks. How Can I Reduce the Taxes I Owe?."