Should someone have died in 2003, he could have bequeathed, without incurring any federal estate tax, one million bucks to his heirs. If, then, on the date of death, the decedent owned 1000 shares of a stock that was worth that one million, and those thousand shares were distributed quickly–no problem.
But what if, between the date of death and the date of the actual distribution of that stock to heirs, the value of those shares increases? If those thousand shares are worth, say, eight months later when the lawyers finally get all the paperwork done, 1.2 million bucks, do the thousand shares (which were only worth one million on date of death) now have to be adjusted–in this case, reduced in number–to conform to the $one million limit, or can the per-share value at the date of death be used, thereby slipping more money into greedy heirs’ little paws?
I am absolutely not an estate or tax lawyer so don’t take this to the bank, but, in general, title to any decedent’s asset passes at the moment of death. The heirs own it immediately, the probate process being a matter of confirming what really happened and the tax consequences thereof. In other words, the heirs own it but the process determines who the heirs are and what shares they acquired so that third parties (be they buyers or the IRS) can have some comfort in knowing that they are dealing with the real owners.
Buying a house from the three children of the deceased can get real interesting when the fourth sibling they neglected to mention shows up six months later.
IANAL, but JBENZ pretty much has it. To simplify a bit, the value of the estate, for purposes of taxation and distribution, is set in concrete at the moment of death. What the stuff is worth a day, a week, or a month later isn’t relevant.
When my mother and father died the house passed to me and my brother. What I learned during the probate period was that the value of the house was set on the day of their death, so even though my brother and I did not receive title to the house for almost 6 years (I was under 18 at the time) the value for tax purposes was what the house was worth when they died.
Now, IANAL and I don’t know if cash or stocks are classified the same as real estate so go see a real lawyer licenced in your state.
IANAL or tax expert but imn my experience stocks work the same way.
My grandmother had a portfolio that was 50% utilities and 50% hi tech. She died just before the Big Dot.Com Crash.
By the will I was entitled to 1/6th of the assets. 18 months after she died the probate porocess was complete and I got shares in each company she owned, 1/6th of the total number of shares of each. The utilities were worth about the same as they were on the date of her death, while most of the hi tech was worth about 1/3rd of what it had been, and several had gone to zero.
My tax basis for each share was its value on her date of death and I had some huge losses to put on my tax return.
The only good news is that the tax laws consider any gain or loss on sale to be long term, even if the decedant bought the shares the day bedfore they died and you sold them three weeks later after a very quick (but fair) probate.
Thank you all very much for the info.