Losing a loved one is a challenging concept. Not only do you have to deal with the emotional loss, but there are several business items that must be considered. There some more obvious items to deal with like heirlooms and real estate, but what does one do when they inherit stock or securities? This may not be as simple as it would seem to deal with. Many times, the stock that is left is from a longtime employer of a loved one and there may be a sentimental connection. Or it may be that the securities that are left are from a private equity situation with a family firm. In either case since the value of stocks and securities can be very fluid, you may be asking what it best for you and your situation. Here are few steps to consider:
Take some time before doing anything. The instinct of some people is to sell immediately as the market can move quickly and there is the fear of losing value. The fact of the matter is, there are a lot of steps to consider when settling an estate and items that must be dealt with related to your loss of a loved one. In these cases, it can be good for you to wait until you have a full grasp of all it will take to settle. Take some time to consider all the factors before acting.
Calculate your tax liability. An important early step is to calculate is what the potential tax liability of selling inherited stocks may be. A common misconception some people have is a fear that they will be taxed significantly on the appreciation of the asset over the lifetime of the benefactor. This is incorrect. Federal capital-gains taxes consider the growth of a stock—one that is not in a retirement account—only from the benefactor’s date of death, not the date the benefactor purchased. Calculating the tax liabilities can be quite complicated at times, and you may want to consider getting some help from a tax professional to fully understand your liability.
Plan how you will sell. After you fully understand your tax liability, you need to plan how you will sell the stock. In most cases, investors will want to sell as the inherited stock is dominated by a single source and it could be in their best interest to diversify. However, no solution is a guarantee for everyone, so you will want to speak with your financial advisor to get a better idea of your options when planning to sell.
How will these new assets fit into your larger financial plans? The pitfall that many beneficiaries fall into with an inheritance is treating it like fun money instead of fitting it into their larger financial goals. These stocks or funds from the sale of stocks can be used to get out of debt, set up an emergency fund, or better contribute to a retirement fund. It’s possible the stocks that are left could fit nicely into your current portfolio. The key is having financial goals set up and a plan on how to get there. This way, when an inheritance comes around, you will know what to do with it, instead of scrambling and possibly losing out on taking full advantage of the gift you’ve been left.
If you have been left an inheritance of stock or simply need help in establishing your financial plans, the advisors at Sound Financial would welcome the opportunity to sit down with you and see how we can help you work toward your financial goals. Whether you are navigating retirement plans or an inheritance, you can put our many years of experience to work for you. Contact us today!
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS. There are no guarantees that any managed portfolio will meet its intended objective.
Neither diversification nor asset allocation can ensure a profit or protect against a loss. Past performance is not indicative of future results.
Posted on Thu, December 15, 2016
by Sound Financial