Inherited stock is passed from an owner to a recipient or heir, often after the owner’s death. The recipient may have to pay taxes on the shares, and there may be conditions for gaining control of them. The recipient can sell or hold the shares for investment purposes.
Inherited stock is any stock passed from an owner to a recipient or heir. Often, inherited shares are received when the owner dies and the shares have been allotted in a will and testament for the use of a specific heir. Other times, the shares are part of a trust structured to provide financial support to a loved one until they reach a certain age, when full access to the shares is granted.
While inherited stock is often accepted with gratitude, it’s important to remember that receiving this type of property can also create something of a financial burden. Depending on how the transfer of shares was arranged, the heir or beneficiary may be required to pay taxes on those shares out of pocket. In many countries, this taxation is based on the amount of appreciation the stock generates from the date the inheritance is actually received. This is also true of the cost basis for the shares that increased during the time the recently deceased owner continued to control those shares. It is not unusual for the deceased to have previously made arrangements to transfer the shares so as to create the least possible amount of capital gains tax for the heir.
There is often the possibility that arrangements will be made to allow specific heirs to gain control of the inherited shares only after the qualifications put in place by the original owner have been met. For example, a parent with minor children may stipulate in her will that each child be entitled to a certain number of shares of a specific stock option only after they reach a calendar age specified in the terms of a trust. Meanwhile, a trustee manages the trust and is charged with using any income generated by those shares to provide the children with food, clothing, shelter, education, and any other specifics identified in the trust agreement.
When inherited stock is transferred to an adult heir, the process typically involves transferring those shares into the recipient’s name. In many countries, this process can be accomplished in a very short period of time. Unless any pre-existing code or provision is attached to the ownership of such shares, the heir is free to use the inheritance in any way he chooses. This may include selling the inherited shares for an immediate cash influx or selling a portion of the shares to settle any taxes owed and holding 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.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
