How to Value Stock Inherited in a Q-Tip Trust
For 2010 only, the original cost basis in the inherited property carries over from the decedent to the heir, unless the fair market value at the time of death is less than the original cost. Non-spouse heirs get to adjust the cost basis up by $1.3 million total, but surviving spouses, including those with the Qualified Interest Terminable Property Trust (QTIP trust), can adjust the total cost basis up by $3 million, as long as the adjusted cost basis in any individual asset does not exceed the fair market value at the time of death. Beginning in 2011, as in years prior, you as heir can "step up" the cost basis to the stock's fair market value as of the date of death or six months after the date of death.
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Things You'll Need
- Decedent's date of death
- Date six months after decedent's date of death
- Q-Tip Trust Account Statement for the month ending after the date of death
- Any stock quoting site that provides historical quotes
- Spreadsheet program or lined paper
- Calculator
Instructions
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Gathering Information
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Determine whether the date of death was in 2010. If so, you must rely on the original cost basis of the stocks. From there, the IRS allows you to adjust the cost basis up by a maximum $3 million, not to exceed the fair market value as of the date of death, which you can determine by using the steps listed here.
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Enter the symbol for each stock to be researched into a spreadsheet or aligned in a column on a lined piece of paper.
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Navigate to a stock quoting site and enter the first stock symbol to get a current quote.
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Click on the link for historical quotes and locate the actual date of death on the table.
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Enter the high price and the low price for that day next to the stock symbol on your spreadsheet.
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The IRS changed cost basis rules for inherited stocks for 2010 only. Locate the date six months from the date of death and enter the same two prices in a row across your spreadsheet on the line below the row of prices for the date of death. Perform this step only if the date of death is 2011 or later.
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Repeat this process for each stock listed. You will find only one price for mutual funds, which trade once per day.
You need not perform this calculation for individual bonds if you intend to hold them to maturity. Once the bond matures you will receive the principal that the decedent originally invested, and you need to pay taxes only on the interest paid to you after you received it.
Valuation
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Review your price lists for the two dates and determine if the majority of stocks had a greater value on one date or the other. You want your new stepped-up cost basis to be as high as possible. If your spouse died in 2010, you must use the fair market value as of the date of death for your adjustments.
The step up value is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset.
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Add the high and low prices together for whichever date you chose and divide by two, giving you the fair market value of that stock.
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Repeat this valuation process for each stock or mutual fund on your list. Only repeat this step for bonds if you intend to sell them before they mature.
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Calculate the total difference in cost basis from the original cost basis to the fair market value at the date of death if your spouse died in 2010. You get $3 million in cost basis adjustments altogether, including the cost basis adjustment on any real property you inherited, so you might not be able to allocate all of your adjustment dollars to the stock portfolio. You can ignore this step if your spouse died in 2011 or later.
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Tips & Warnings
Check with your brokerage firm to find out what it charges for a valuation of the stocks in the trust. If the cost is reasonable, you might save some time with this option, although your brokerage firm will generally require one or more weeks to prepare and mail your report.
For 2010 only, consult a qualified estate tax attorney or CPA for assistance with allowable adjustments to your cost basis. You can still use the steps here to determine the fair market value at the time of death.
References
Resources
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