How to Sell an Inherited Mutual Fund
A death in the family is always a tragedy, and the inevitable squabbles, haggling and legal wrangling over what to do with an estate tend to not make things any easier. Before you have to tackle the issues involved in handling an inheritance, it's enormously helpful to learn about them beforehand. You could save yourself a lot of pain and keep more inherited assets out of the hands of lawyers and taxmen.
Inheriting a mutual fund is much like inheriting other securities. The most complicated thing about inheriting shares in a mutual fund is handling the tax overhead associated with it.
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Instructions
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Keep in mind that, for tax purposes, what matters most is the value of the mutual-fund shares at the time of the holder's death. This makes it difficult to predict how much the fund is going to be worth and how much you'll owe in taxes if you're planning before the actual event of the death.
There are some exceptions to this rule, however.
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Know that, if the inheritance in question is distributed from one spouse to another, the situation changes. The value of the shares is calculated to be 1/2 the total for the purposes of the inheritance, as the assets are considered to be split equally between marital partners (but only if it's part of a joint account).
In the case of imminent death, it can limit tax exposure considerably to transfer the entire account to the survivor, to preserve as much wealth as possible.
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Get experts involved as early in the process as possible, particularly if mutual-fund shares are to be distributed between multiple heirs. Tax accountants, money managers and estate-tax lawyers can all end up saving you significant amounts of money that would otherwise be gobbled up by the government or in inter-heir arguments if the size of the mutual-fund holdings in question is significant.
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Tips & Warnings
Keep in mind that, the sooner you conduct estate planning, the better it is for everyone involved. It's better for the heirs, and it reduces the stress on the estate holder. Nobody wants to go to his death bed worrying about how his assets will be distributed. Try to work through the initial emotional resistance to dealing with these issues, and there will be much greater peace of mind--and increased wealth preservation--for everyone involved.
