10 Mar I inherited $200K in stocks. Should I sell them?
Q. I inherited a brokerage account from my sister worth about $200,000. I have only mutual funds and this account is invested in stocks. How should I treat this money? I don’t want to end up owing too much in taxes but I don’t know that I like having individual stocks.
A. We’re sorry to learn about the passing of your sister.
There are a few things to consider.
Before you transfer the stocks to your name, the cost basis for each stock needs to be updated for her date of death, said Jody D’Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.
You get what is called a “step up in basis” for the date of death, she said.
“In other words, each stock position should be adjusted to the cost basis for the inherited stock to the fair market value on that date,” she said. “This should minimize the tax implications of any shift in investments that you want to make in your account.”
You do not need to keep the stocks if you prefer the mutual funds that you have, she said.
“You simply would sell the stocks and convert the cash into the mutual funds,” D’Agostini said. “There should be minimal taxes due as the market value and cost basis should be nearly the same unless much time has elapsed.”
Mutual funds can give diversification to your investments, she said.
“Diversification can reduce risk in your portfolio as you would own more companies perhaps than in the individual stock account that your sister held,” she said, noting you should see these new investments as an addition to your portfolio, so they should be a part of your overall asset allocation.
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This story was originally published on March 10, 2023.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.