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Inherited Stocks and How to Handle Them

April 15, 2021 By Kathryn Vercillo Leave a Comment

Are you going to receive an inheritance from a loved one when they pass away? Obviously this is a generous gift from someone who wants you to do well in the future. However, there are many different types of inheritance. Some of them are easier to understand than others. For example, if investments aren’t your strong suit, then you might face confusion if you receive stocks as inheritance. How do you handle inherited stocks?

What Are Inherited Stocks?

A person can leave anything they own to almost anyone they want through use of a will. Therefore, if someone you love owns stocks, then they can leave those to you as an inheritance. At the basic level, it simply means that when the person passes away, the stocks pass on to you. They become your stocks. There are, of course, many different types of stocks. And now they’re all yours. So you have to learn how to handle inherited stocks if you want that money to be a good thing, rather than a burden.

Managed vs. Unmanaged Inherited Stocks

The first thing you’ll learn when trying to handle inherited stocks is that they may or may not be managed investments. If the person who left them to you outlines in the will exactly what you’re to do with them, then they are managed stocks. If not, then they are unmanaged stocks. A majority of inherited stocks are unmanaged stocks. Therefore, what you do with those stocks is up to you as soon as they pass into your hands. In order to know how to handle inherited stocks without any instruction from the person who left them to you, you need to make sure that you understand the stocks that you’ve received.

Tax Losses and Gains on Inherited Stocks

You can sell your inherited stocks at any time that you wish. However, it’s important to understand that you’re going to have to deal with this come tax time. Timing could be everything if you want to pay the least in taxes or get the most tax benefit out of them. Kiplinger explains that typically how you handle inherited stocks has to do with the value of the stock at the time of the person’s death (when you received the stock) and at the time of sale. The value at the time of purchase doesn’t matter.

Your tax amount depends on the difference between the value at the time that you received it and the value at the time that you sell it. So, for example, let’s say that you receive $10000 in stocks through an inheritance. It doesn’t matter that the person giving it to you spent $1000 (or for that matter $100,000) at the time of purchase. All that matters for tax purposes is that it was valued at $10000 on the day that person died.

You sell the stock and the difference is your tax information. If you gain money, then you pay taxes on those gains. So, if you sell the stocks for $15,000, you’ll pay taxes on $5000. (That’s the difference between the $10000 value at time of death and the amount you sold it for.) On the other hand, if you sell it at a loss, let’s say for $7000, you’ll be able to deduct the loss on your taxes. In that instance, you could deduct $3000, which is the difference between the $10000 value at time of death and the amount you sold it for.

Should You Sell Inherited Stocks?

If you’re in need of the money, it’s not a terrible thing to take a loss. After all, this was “free money” and you still get that cash plus the tax deduction. In fact, if you’re in a position where you need to offset capital gains, it could make sense to take the loss. But obviously if you believe the stock will rise in value, and you’re in the position to hang on to it, then you might want to hold off and sell later. In that sense, you handle inherited stocks just like any other stocks you have.

Step One: Figure Out what You Have in Stocks

The most important thing for you to do when you receive inherited stocks is take stock of what you now own. Whether or not you’re already skilled at investing, this is now your money. Therefore, it’s your responsibility to make the most of it. And before you can do that, you have to get a good working grasp on what you have.

Grief can complicate this process. Let’s say that your mother leaves you a stock inheritance. That means your mother has recently passed away. Hopefully if she had the foresight to take care of this inheritance for you, then she also made arrangements for her own end-of-life costs. But your mother might have accrued a lot of end-of-life medical debt or other expenses. Therefore, you could have immediate financial concerns to deal with as well as the grief of trying to cope with losing your mother. All of this can make it hard to think clearly when it comes to how you want to handle your inherited stocks.

Therefore, if at all possible, wait until you have a clear mind to deal with them. Once you’re ready, sit down and review everything. Get clear on all of the stocks that are now in your name. What kind of stocks are they? How much money are they valued at? Do they reflect your personal investment values and goals? Once you know what you’re working with, it will be a lot easier to decide what to do. What if you find that you don’t understand what you have? Then, it’s worth it to invest in a personal finance advisor to guide you.

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3 Reasons Not To Leave Your Estate to Your Kids

March 5, 2021 By Kathryn Vercillo Leave a Comment

You spend a lifetime earning, investing, and accumulating valuable property and assets. You have always planned to pass your estate down to your children as their inheritance. After all, you didn’t gain all of this stuff just to take it to the grave with you. But what if inheriting your estate is the wrong thing for your kids? Or if over time you’ve come to the conclusion that it’s not right for you to leave your inheritance to them. Here are three big reasons why you might not want to leave your estate to your kids:

1. You Want To Contribute To Your Community

Perhaps your adult children already have enough money. Maybe they’ve earned it on their own. Or perhaps you’ve given them enough to leave them on stable ground. The rest would just be extra for them. Of course, it’s nice for everyone to have a little extra. But you might find that you want your estate to do better work in the world.

Are there specific causes that you care about and want to contribute to when you’re gone? Perhaps you would like to create a scholarship in your own name? Or donate a percentage of money to research? Whatever your passion is, you may find that giving your estate to that feels better to you than simply leaving it to your children.

2. You Have Multiple Children with Differing Needs

There are so many reasons why you might wish for one child to inherit more than another child. Therefore, you might think about how to leave all or a majority of your inheritance to only one child. Or you might have reasons you want to disinherit a particular child. You can legally do any of those things. However, doing so can further strain what might already be difficult relationships in the family.

During your lifetime, this could strain your relationship with your children if they know about the inheritance plans. Both before and after your death, this could strain the relationships that the siblings have with one another. Therefore, if family dynamics are too complex, you might want to consider leaving your estate to someone else entirely.

3. A Legacy Trust Is A Better Solution

Perhaps you do want your children to have access to your money. However, for a variety of reasons, you don’t want to give them an inheritance outright. Just a few of the reasons might include:

You don’t trust your children to properly manage the money
Potential divorce in the family could mean your money goes to an ex child-in-law in the future
Future bankruptcy or lawsuits could take that money away from your adult child

If you want to protect the finances – and your children – then you might consider an alternative method of leaving your inheritance to them. A Legacy Trust is a popular alternative to direct inheritance. The trust owns the estate after you pass. Therefore, if your child eventually encounters bankruptcy, lawsuit, divorce, etc. then the money still has protections for them. Thus, if you want your child to have access to your inheritance but not to have complete control over it, then the Legacy Trust can be a good option.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

How to Maintain Your Finances in Difficult Times

October 2, 2008 By Jennifer Touchette 2 Comments

When my mother died, I worried a lot about my father. How will he cope? What will he eat? Despite my worrying, I didn’t need to worry much about his finances. His forethought saved his financial life, despite our family’s terrible loss.

Dad always has been a stickler for details. This carries over into his bill paying and investments. During their marriage, he was the one who took care of the bills. He was the one who managed the income. He was the one who made sure they could afford their comfortable life.

Of course my father reeled from the loss of his wife. We all did. Mom and Dad’s lives had meshed together well from the time they started dating. They had a good life together.

Two years later, dear Dad is slowly piecing his emotional life together. During this time, it seems he has ignored his finances. In reality, he has been able to rely on advice from his trusted financial advisor and the clear, efficient way he managed their money before and after Mom’s death.

Deposit money electronically

I remember when the miracle of automatic deposit became a reality. Ever since its inception, Dad faithfully used it for both his and Mom’s paychecks. When they retired, they set up their Social Security and pension payments to be deposited automatically too. By never having to step foot in the bank to physically deposit a paycheck, it was easier for him (and Mom) to resist taking cash out.

Pay bills electronically

Dad was also an early subscriber to automatic payment. Every bill that could be paid through automatic withdrawal is paid from his checking account. This was a blessing in his time of grief: the money was deposited automatically, the bills paid automatically, and he could keep an eye on his checking account from time to time through the bank’s telephone banking system. Although one doesn’t want to make a habit of this, it was good there was one less thing Dad had to worry about during the first months without Mom. Dad is again taking care of his financial housework, which includes balancing the checkbook and tracking investments.

Get an advisor you trust

Dad’s financial advisor has been a family friend for years. Happily, she is also really good at what she does. With a lot of common sense, and a good feel for what amount of risk her client is willing to take, Dad’s advisor was able help him make the most of the money my mother left. This financial advisor helped reinvest my mother’s retirement portfolio to provide consistent income for my father, a plan that was way beyond what even my father – with his savvy saving and spending habits – could imagine.

Pay more than required

When my mother was sick in the last year of her life, the credit card bills and medical expenses piled up. Dad chipped away at these expenses during his first year alone by paying as much as he could to each creditor over the months. By paying more than the minimum required by the credit card company, he taught me that you can actually make headway on your bill. The next month’s bill has a chunk out of it so the interest is less. It is truly delightful to watch your bill shrink away.

Keep good records

There were also a lot of loose ends to tie up with insurance after Mom’s death. Final claims had to be filed, final bills paid – all that detritus had to be finished. This was not easy, but Dad had kept paperwork on the treatments, unreimbursed expenses and payments made by himself and the insurance companies. When there were questions, he was able to produce documents to provide the information. His tax preparer was able to use the paperwork on unreimbursed expenses on the taxes as well.

Share the hiding spots

Yes, it’s morbid, but when tragedy hits, it’s comforting for your trusted person to know where your will is stored, where the bank accounts are, what debts are outstanding, and where your important financial records live. If you’re a widow or widower, this is especially important. My parents took me on the tour every few years, and since Mom’s death, Dad continues to keep me apprised of where his finances stand. This includes where he keeps his credit cards to where he stores the safety deposit box key.

Update your will and beneficiaries

While you’re at it, make sure your will is updated. Do you have someone to take care of your children? Have you appointed an executor to be your personal representative? Is that still someone you want to represent you? It is also important to make sure the beneficiaries on any accounts are up-to-date. Families grow and change over the years, and your stated beneficiaries may need to change too.

There is so much to be done when tragedy hits. Unfortunately finances are one of those things that need to be monitored whatever happens. It makes a tragedy a bit easier to bear if one’s finances are set up well.