What’s the cost basis for an inherited brokerage account?

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Q. My father passed away, after a very long life, this summer and I will be getting one-third of his estate. I do not know if any accounts have been moved from his personal Social Security number to the EIN of the estate. When the assets of his taxable brokerage accounts are distributed, at what point do I consider the basis for going forward per the step up rules: at time of his death or at time of distribution to my ownership, distribution to the estate or some other time?
— Unsure

A. We’re sorry to hear about your father.

The timing will depend on several items. Here’s how it works.

When someone passes away, someone must be in charge of closing the estate, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

This person is usually the executor who was named by the deceased in the will, he said. If there is no will, then someone, usually a relative, has to petition the court to become the administrator of the estate.

“The executor or administrator is the person who handles the assets and liabilities of the estate,” Kiely said. “They should be able to answer any questions you may have about the estate.”

You asked specifically about the step-up in basis.

When you inherit property from someone you receive a step-up in basis. Basis is tax-speak for your cost, Kiely said.

Inherited property comes with a basis equal to the market value on the date of death, he said.

“Technically the new basis for a securities account is the average of the high and low price of the security on the date of death,” he said. “If the executor or administrator of the estate asks the brokerage company, they can supply them with a list of the securities in the account along with the new basis for each security.”

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This story was originally published in Dec. 27, 2021.

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