Selling Stocks After Death

[ExFlyBoy5]

The situation: I am currently caring for my Dad in his final days...odds are he won't be around for more than 4-5 days. I am currently the POA and beneficiary on his brokerage account. He has done very well over the years, but owns individual stocks and would like to divest these individual holdings sooner than later.

With the decline in the market, I would prefer to sell them sooner than later. I understand in order to realize the stepped-up basis, I would have to wait until the day after death. I also understand that it could take a while to transfer the assets to my name...so it could be 2 or more weeks before I could sell them. My question is, if I sell them the day after death, (before reporting the death to the brokerage house) what issues might I run into? I would think at a minimum, it could result in some tax reporting issues.

Sure, I could wait to sell them after being transferred, but even with a possible 2-3% decline, that could be a significant loss and I would like to minimize that as best as I can.

 

[mexexpat]

If you are contemplating selling the stock the day after your dad's death by pretending he is still alive you are violating SEC laws.

As far as declines in markets, the market is volatile now and trying to guess whether it will be up or down day-to-day is a fool's game.

 

[Dash man]

I’m sorry about your dad. It has to be tough.
Would the capital gains tax hit on your father’s estate be higher than what the market downturn might be?
I also agree it would be breaking laws to sell after his death. The POA is not valid after death.

 

[ExFlyBoy5]

If you are contemplating selling the stock the day after your dad's death by pretending he is still alive you are violating SEC laws.

As far as declines in markets, the market is volatile now and trying to guess whether it will be up or down day-to-day is a fool's game.

Both very valid points and I have considered both. It seems wise to just maintain the status quo and "relax" and stop worrying about it. Things have been very stressful the last couple of months and I do think this has clouded my judgement somewhat.

 

[mexexpat]

Both very valid points and I have considered both. It seems wise to just maintain the status quo and "relax" and stop worrying about it. Things have been very stressful the last couple of months and I do think this has clouded my judgement somewhat.

We went through this with my FIL as his dementia and physical condition worsened. We discovered he had not moved his assets to the Trust he had created years before (this is not that uncommon!).

We did what we could to ID his assets and move them to the Trust while he was still mentally and physically able to do so.

As time went on, going to the bank for the Medallion Signature was getting more difficult for him (hip pain and also depending on whether he was having a good day or bad day mentally, we worried the bank would deny him the Medallion Signature needed to transfer assets in his name to the Trust).

So my DH decided to deal with those items later after his death. He ended up in Probate with those assets (and a few assets discovered after his death), but that's just the way things sometimes go with end-of-life issues.

 

[marko]

Unless I don't understand, if you have POA can't you do anything you want to do right now?

 

[hesperus]

Both very valid points and I have considered both. It seems wise to just maintain the status quo and "relax" and stop worrying about it. Things have been very stressful the last couple of months and I do think this has clouded my judgement somewhat.

Couldn't agree more. I went through something similar and what I learned from it was to not make major financial decisions in this type of environment. Take care of your father first. Sorry for what you are going through.

 

[MichaelB]

Sorry to hear about your dad.

 

[ExFlyBoy5]

... that's just the way things sometimes go with end-of-life issues.

That is so very true. I went up to my Dad's local bank to unlock the online access after he got it locked out a few weeks ago. Even though we had done almost *everything* possible to make managing things as easy as possible when he got into this condition, I ran into an obstacle after figuring out that he hadn't removed his DW after she died 5 years ago...and that put a huge kink into it. I was able to do a workaround to deal with it, but it was something we didn't take into consideration and if not noticed when it was, it could have created quite the mess. Not only to mention, took precious time away from being with my Dad.

Unless I don't understand, if you have POA can't you do anything you want to do right now?

I could, but it would result in a HUGE tax hit as the capital gains are quite significant.

 

[JoeWras]

My question is, if I sell them the day after death, (before reporting the death to the brokerage house) what issues might I run into? I would think at a minimum, it could result in some tax reporting issues.

It will result in tax reporting issues.

I sold about 10 days after the death, before I reported the death to the brokerage (Vanguard). I was POA, trustee, etc. I had all the power. Everything was legal. I just forgot to notify them! Stupid mistake.

That's fine, but a tax headache resulted. Luckily, there is a form for that. I had to fill out a longish form for Vanguard to properly adjust the basis. It was a headache. Doable, just a pain the behind.

 

[ExFlyBoy5]

It will result in tax reporting issues.

I sold about 10 days after the death, before I reported the death to the brokerage (Vanguard). I was POA, trustee, etc. I had all the power. Everything was legal. I just forgot to notify them! Stupid mistake.

That's fine, but a tax headache resulted. Luckily, there is a form for that. I had to fill out a longish form for Vanguard to properly adjust the basis. It was a headache. Doable, just a pain the behind.

The tax reporting is what I really thought would be a huge pain. I wonder why the form to adjust the basis would be so long and complicated? I think that would be SO much easier to figure out that figuring the value prior to the step up.

 

[WestUniversity]

The situation: I am currently caring for my Dad in his final days...odds are he won't be around for more than 4-5 days. I am currently the POA and beneficiary on his brokerage account.

Generally POA ceases at death. After that you need “letters testamentary” to transact business on your fathers account...

 

[ExFlyBoy5]

Generally POA ceases at death. After that you need “letters testamentary” to transact business on your fathers account...

As far as I know, there is no "generally" about the POA ceasing at death. I don't know of a single state in the US that would recognize a POA after death. I added that to illustrate that I have legal authority to act *today*.

As to the letters testamentary, this is a very good point and could be a teaching point for others. A lot of folks use the TOD to circumvent probate, but reading through the TOD agreement for my Dad's account, the letter is still required. We managed things in order to avoid probate, but now probate will be required.

 

[JoeWras]

The tax reporting is what I really thought would be a huge pain. I wonder why the form to adjust the basis would be so long and complicated? I think that would be SO much easier to figure out that figuring the value prior to the step up.

"Long" is in the eye of the beholder. I was hoping it could be done over the phone or web. Nope. Because of the nature of this, they want a paper trail. When you are dealing with the death of a loved one, everything seems long. ...

Vanguard's form is 4 pages long. It covers a few scenarios to adjust basis on death. You have to choose the right one, so that covers 2 pages. Every security sold has to have all the details filled out.

Page 1 was all the information for the trust, including all trustees, etc. Just a bunch of junk they have on file that you have to re-fill out.

Last page was strong language about what you are doing and absolving Vanguard of all of your possible tax shenanigans, etc. Then you sign in a few places.

So, yeah, it wasn't catastrophic, just a pain, and another poke in the raw wound of my father's passing.

 

[gauss]

A middle (legal) option would be for your Dad to add you as a joint owner on the account now.

You would then be able to sell at anytime after the account registration has been updated, and if you perform a sale after his death, you would still get the stepped up basis on 50% of the assets (ie. his share).

Also, you are responsible for determine your cost basis for assets you have sold on your tax return (not the brokerage).

The brokerage requirement to report what they believe the basis is secondary, but you can make adjustments (IRS form 8949 columns e/f/g) if they report an incorrect basis.

-gauss

 

[cathy63]

As to the letters testamentary, this is a very good point and could be a teaching point for others. A lot of folks use the TOD to circumvent probate, but reading through the TOD agreement for my Dad's account, the letter is still required. We managed things in order to avoid probate, but now probate will be required.

Are you Beneficiary of the TOD? If so, double check the language in the agreement and see if the requirement for the letters testamentary is only when the person doing the transfer is the personal representative of the estate instead of the beneficiary.

Basically, if you are the TOD beneficiary, you can transfer the money to yourself upon proving that the account holder is deceased.

If you are not the beneficiary, then you can only transfer the money to that person if you can prove that the account holder is deceased and also that you are authorized to act on the estate's behalf; and the way you do that is to provide the letters testamentary.

 

[WestUniversity]

As far as I know, there is no "generally" about the POA ceasing at death. I don't know of a single state in the US that would recognize a POA after death. I added that to illustrate that I have legal authority to act *today*.

My own personal experience has borne that truth out, but since I am not an attorney I reasoned that “generally” was a safe assertion to make...

 

[pb4uski]

Sorry to hear about your dad.

Talk with the brokerage house. I'm thinking that you can set up an account with them and sell short the day after your dad passes, then cover the short sale with the inherited shares when you receive them. The effect will be as if you sold the shares the day after you dad passes.

 

[harley]

Personally I believe you are just looking for something to think about other than what you and your loved ones are going through. Believe me, I understand that completely!

But just to put it in perspective, let's play a numbers game. Say your Dad's stock has a cost basis of $250K, and is worth $1M at the time of death (just made up numbers, so feel free to fill in your own). You get a stepped up cost basis, so the cost and value is now $1M. If you sell 10 days later and the market is down 5% from the day of your Dad's passing, you get $950K and a $50K Capital Loss to be applied against other gains at some point. That's still a big gain from the $250K cost basis. Not bad.

Now if the market drops 50% in those 10 days it would be another story, but I suspect you'd have bigger things to worry about in that case. And no matter what, you've got bigger things to deal with now. Distractions can be useful, but don't get carried away.

Good luck to you and yours during this really difficult time.

 

[PatrickA5]

I had something similar happen earlier this year when my dad took a turn for the worst and it was obvious he only had a week or two left. But, fortunately his overall gains were going to be less than his standard deduction and exemption amount, so I saved my brother and I some headaches by selling a few days before his death. We were able to just split the cash up a couple of weeks after we got the death certificates. I'll have to report all of his gains on the final 1040 I do for him next year. I realize the OP had more significant gains, but it might be an option for others in the same situation (assuming they have POA).

 

[GrayHare]

Timing such stock sales just right seems awfully difficult. Something easier is to sell stocks that have a loss so as to lock in that loss rather than have the cost basis stepped down.

There are other financial steps you can consider, but which ones incur less tax depends on many factors. It can get complicated. For example, has your dad taken an IRA RMD yet? If not, it will be taken after his death and become income to the beneficiary. Depending on tax brackets, deductions, type of IRA, etc. that could be either a good thing or a bad thing tax wise.

 

[HI Bill]

So, the brokerage account is taxable...but if you 'transfer in kind' the assets, won't you retain the cost basis your father had? As long as you don't sell them, you shouldn't have to pay capital gains or ordinary income tax on short term gains?

 

[ExFlyBoy5]

Timing such stock sales just right seems awfully difficult. Something easier is to sell stocks that have a loss so as to lock in that loss rather than have the cost basis stepped down.

There are other financial steps you can consider, but which ones incur less tax depends on many factors. It can get complicated. For example, has your dad taken an IRA RMD yet? If not, it will be taken after his death and become income to the beneficiary. Depending on tax brackets, deductions, type of IRA, etc. that could be either a good thing or a bad thing tax wise.

I had previously taken the RMD and when he was enrolled in hospice, I went ahead and took another distribution to get him up to the maximum that wouldn't trigger a tax hit in this, his tax final year. I did that in order to reduce the RMDs I'll have to take in the future when it's then an inherited IRA.

As far as the brokerage account is concerned, I'm taking the good advice of the members here and will deal with it after he has passed and I am dealing with the estate.