Inherited shares are passed down from an owner to a recipient or heir, often through a will or trust. However, taxes may need to be paid on the shares, and some heirs may have to meet certain qualifications before gaining control of them. Adult heirs can sell or keep the shares as they choose.
Inherited shares are shares that are passed from an owner to a recipient or heir. Often, inherited shares are received when the owner passes away, and the shares have been earmarked in a last will and testament for the use of a specific heir. Other times, the shares are part of a trust that is structured to provide financial support to a loved one until he or she reaches a certain age, when full access to the shares is granted.
While inherited shares are often gratefully accepted, it’s important to remember that receiving these types of assets can also create a financial burden. Depending on how the transfer of the shares was arranged, the heir or beneficiary may be required to pay taxes on those shares out of pocket. In many countries, this tax is based on the amount of appreciation the shares generate from the date the inheritance is received. This is true even on the cost basis of the shares increased during the period that the recently deceased owner continued to control those shares. It is not unusual for the deceased to have previously arranged to transfer the shares in a way that he creates the least amount of capital gains tax for the heir.
There is often the possibility that steps will be taken to allow specific heirs to gain control of inherited holdings only after the qualifications set by the original owner have been met. For example, a parent with minor children may provide in their will that each child be entitled to a certain number of shares of a specified stock option only after they reach the calendar age specified in the terms of a trust. Meanwhile, a trustee administers the trust and is charged with using the income generated from those shares to provide the children with food, clothing, housing, education, and any other specific information identified in the trust agreement.
When inherited shares are transferred to an adult heir, the process typically involves transferring those shares into the recipient’s name. In many nations, this process can be accomplished in a very short period of time. Unless some pre-existing code or provision is attached to the ownership of those shares, the heir is free to make use of the estate in any way he chooses. This may include selling inherited shares for an immediate cash inflow, or selling a portion of the shares to pay off taxes owed and retain the rest in an investment portfolio. The heir may also choose to simply allow the shares to continue to generate income and receive annual dividends from those investments.
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