How to Value Inherited QTIP Stock After the Beneficiary Dies
A Qualified Terminable Interest Property Trust (QTIP Trust) is a trust used in estate planning to ensure one group of beneficiaries receives an inheritance regardless of the marital status of the QTIP trustee. The most common use of the QTIP is to ensure children from a first marriage retain the assets of the estate after a second marriage. The surviving spouse is allowed to use the distributions from the trust for lifetime income, but the assets revert to the children upon his death. Valuing inherited stock when the surviving spouse passes away has special estate planning considerations.
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Instructions
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Read the trust agreement and determine how the estate was treated after the death of the original QTIP trustee. If the inheritance was considered a gift, then the entire value of the QTIP trust is now considered part of the recently deceased surviving spouse's estate for estate taxes.
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Compile a list of all equities and the original cost basis of each held in the QTIP trust that are affected by the death of the surviving spouse. This information is available via brokerage firms, old statements or tax records. Remember that you want the cost basis of stock at the time the surviving spouse inherited the income.
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Look at a calendar and determine if you will inherit the value at the original cost basis or at the step-up basis. Estate taxes are not owed for beneficiaries of those passing away in 2010 only, and the value of the inherited stock is the original cost basis of the surviving spouse. But starting in 2011, the inherited value is stepped up to the fair market value on the date of death of the surviving spouse or after a six-month period following her death.
Therefore, assume a QTIP trustee bought XYZ stock for $10 a share and died in 2010, leaving the income of this stock to his wife when the stock was $20 per share. Her cost basis for the stock is $20 per share. When she dies, the cost basis has a high of $34 and low of $21 within the six months of her date of death. The beneficiaries may choose the highest cost basis of $34 as their own. The fair market value of $25 on the date of her death is used for her estate tax considerations.
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