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Discussion Forum Index --> Tax Questions --> Basis of stock inherited then gifted
FLAEA (talk|edits) said:
| 22 June 2007
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| Husband dies and wife inherits stock. Stock purchased in 1990 in a non-community property state. Later wife gifts stock to her three adult children. Child (my client) sells stock. I know that the basis of gifts are basis in the donor's hands (mother's). Am I correct in believing that the mother's basis is 1/2 cost + 1/2 stepped up basis (for husband's 1/2). Would I be correct in using that basis for the son's basis? For example: If cost of stock was $25,000 and FMV at DOD was $30,000 then mother's basis upon inheriting stock would be $27,500 ($12,500 + $15,000)? The son's basis would be 1/3 of $ 27,500 = $9,167? I do not know whether a gift tax return was filed by the mother and I have no confirmation on the values other than the original cost.
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Kevinh5 (talk|edits) said:
| 22 June 2007
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| you need to know whether only 1/2 was included in father's estate (which you could assume if you knew that mother owned it JTWROS with father at the time of his death) for your assumption to be correct.
What if it was all in father's name? Then it would have gotten 100% stepup at his death.
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FLAEA (talk|edits) said:
| 22 June 2007
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| I would need then to see the estate tax return for the father to see if the full amount was included in the tax return. This particular case has taken a lot of digging. My client intially told me the stock was inherited. I asked for the basis. They didn't have it but the sister in law gave them a figure. I asked for something for my file to back up that figure (which I presumed was from the mother's estate tax return) and no one had a copy of the mother's return. Broker, who had been with family for years, called me and I asked him for help in confirming basis for my files. He said he had a copy of the mother's estate return and the stock was not listed on there. That's when I found out it was gifted to the children after the mother had inherited it from the father. The tax preparer for the other two chldren (same preparer) used a basis given by the broker's secretary over the phone which I believe was probably the FMV of the stock on the mother's death. That value is higher than my basis since I'd be using the donor's value. Of course my client won't be happy. (The other preparer, by the way, also did not know the stocks were gifted not inherited).
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Dennis (talk|edits) said:
| 22 June 2007
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| Examination of father's 706 is the only way to be sure. A joint account would not necessarily preclude a full step-up. Further, transfer from mother directly to children imediately after father's death is more suggestive of a disclaimer than a gift. One should never rush toward an assumption disadvantageous to client.
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Blrgcpa (talk|edits) said:
| 22 June 2007
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| Maybe the stock was originally only in the father's name. The mother received the full step up in basis. If at a future date, she gifted the stock, the receipient would use the donor basis. If the stock was distributed after the mother died, then there is a step up in basis at her dod.
All these facts must be checked out.
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FLAEA (talk|edits) said:
| 23 June 2007
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| Dennis - Please explain what you mean by "more suggestive of a disclaimer than a gift" and how that would affect the children's return.
Thanks!
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Dennis (talk|edits) said:
| 23 June 2007
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| Common situation where husband leaves everything to wife and the unified credit will be wasted. To avoid this wife disclaims assets in amount up to the credit. With respect to these assets she is presumed to have predeceased husband, so kids get them with no estate tax at date of death value. Father's 706 will show exactly what happened. I am basically saying that this is a more likely scenario than mother inheriting and then gifting.
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