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Old 03-11-2008, 02:58 PM
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tax basis for inherited stock

I'm not sure this is the proper place for this question. In 1964, my grandfather died and left, among other things, 100 shares of Baukol-Noonan Inc. (BNI) valued at $125 ($1.25/share). The stock went into a residuary trust which remained operative until 1988 when my grandmother died. At that time, the BNI stock was valued at $19 a share and the trust had 318 shares as the result of stock dividends over the years. A few months later, BNI was acquired by Minnesota Power, and the 318 shares of BNI became 254 shares of Minnesota Power. The Minnesota Power shares were distributed to me when the trust closed. In 1995 Minnesota Power bought ADESA. In 1999, there was a 2 for 1 stock split and I got 508 shares of Minnesota Power, which was renamed Allete. In 2004, Allete spun off ADESA, with ADESA valued at 60% and Allete at 40%. I got 1 share of ADESA for each share of Allete, so I ended up with 508 shares of ADESA. In 2007, ADESA was acquired by KAR and I sold my shares.

Is my basis the 1964 value when the stock went into the trust, the 1988 value when my grandmother died, or the 1989 value when the stock was actually distributed out of the trust?



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Old 03-12-2008, 09:54 AM
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Tax Basis of Inherited Stock?

The IRS rules state that the basis of inherited stock, generally speaking takes up "the Stepped Up Basis", that is the basis becomes the market value at the time of your Grandmother passed.

It definitely does not take place at the time of GrandFather passing away as the stock passes to Grandmother (tax free) at GrandFathers basis price. But, the passing of Grandmother and the resulting transfer of the stock to the Trust, results in the Basis being "stepped up basis to Fairmarket Value", market price prevailing at time of transfer to the Trust.

Now, there is something called "Alternative Valuation Method" that could have been used when the stock got transferred to the Trust. If the Executor selected the alternative valuation method, a value elected that chooses the stock price after 6 months of Grandmothers passing away, you may be able to acheive a higher stock basis. Please contact the Trustee to determine whether this election was made. If so, you may be able to claim a higher basis, assuming the stock price was valued higher at that time.

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