Widow’s agent made a huge mistake

After Karen, a recent widow, reached out to me for help with her husband’s death to get economic organizations. Her husband has a broker, but Karen did not really know him. So she hired me, we went to her financial plans survivors, a tool, I use it to review financial, retirement, real estate, widow of new investment and insurance work. 

Cost base will not step up

As far as I was reviewing the report on their investments, I immediately noticed that something was amiss: the cost basis of the stock of a joint account never stepping on her death the date of her husband. Working tax code, if passed way spouse, the deceased’s share of the cost basis of these shares increased the value date of death. This is important because when you copy Ø sell the stock, the difference between fair market value and the cost basis (gain) is the income tax due. This can be extremely expensive. If she went to sell the stock, she owed a substantial amount of income tax, because she has a substantial income, due to the low cost basis in the stock.

Here is how it works. Karen and her husband, John, have a number of common stock investment accounts. A few years ago they bought a stock, most of them people have realized over time. A stock, $ 25 in 2003, they bought a technology company per share, is now worth $ 180 per share. So, their $ 5,000 investment surged to $ 36,000. Because of their shares held by more than one year, if they sell, they will owe long-term capital gains tax of $ 31 000, which is the difference between the market value of the $ 36,000 cost basis of $ 5,000 (they pay). Karen and John both stand at 15% of capital gains, which means that they owe $ 31,000 increased by 15% – or $ 4,650 – if they sell before, John’s pass stock.

With John’s passing, his rightful share of the cost basis of the stock on the date of his death “step up.” This means that the foundation, rather than on the cost is $ 5,000, half the cost base should be increased to $ 18,000 ($ 36,000, and John share half his day of death in the stock market). Karen share the cost basis is still $ 2,500 – half of the original $ 5,000.

The difference is significant. If Karen to sell the stock, rather than on the basis of a boost, she owed $ 4,650 in taxes. However, with the step on the basis of -Up, she owed only half of the amount, or $ 2,325. By repeating this case all other stocks in their joint account, you can see a significant tax cost would have been, if she did not get the basis step-up.

we went back to the brokerage firm, in order to solve this problem. But why is there such a situation?

Have a joint account, but a different surname is the ultimate culprit

Automatically intensify the date of death on the basis of most of the investment brokerage firm, cost basis. However, this is not always the case when the deceased and the surviving spouse has a different last name, unlike my client’s case. She and her husband married, but she took her last name. In this case, the brokerage firm did not automatically intensify Bass S, but need further directions from a broker late husband – this is the broker must be ignored.

Fortunately, we caught the error in time. Brokerage firm admitted the error. Because they have to file a death certificate, indicating the date of death, it does not require new forms. Investment company to go back and correct it, so at half the cost basis of each stock intensify the date of death of John. Remember, it does not always get “half” strengthen the position value. If John in his account opened in the name holds 100% of the shares, the entire basis of his death a few steps away.

This is often in the world of financial planning and investment of up and add more little things big things. Here, supervision of brokers, if left undetected, may have cost a lot of money Karen unnecessary tax. The key takeaway here is to always double-check on the basis of the cost of stepping up in the appropriate account.

For more insight into financial planning for widows and widowers, please visit my website www.survivorplanning.com.