Inheriting stocks or bonds can often cause concern to heirs based on confusion about the tax laws, according to Money in "I Inherited Stocks. How Can I Reduce the Taxes I Owe?"
Heirs 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. However, the estate pays those before any inheritances are distributed to heirs.
Heirs also inherit securities with what is known as a step-up in 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.
An estate planning attorney can advise you on the taxation laws and how they affect your particular circumstances.
Reference: Money (Oct. 4, 2016) "I Inherited Stocks. How Can I Reduce the Taxes I Owe?."
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