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Do You Own Stocks? Leave Them To Heirs In Your Will For Tax Savings


Estate planning is complicated, particularly thinking through the tax consequences of leaving property to your heirs. Fortunately, few estates will need to pay federal estate taxes, and Florida does not have an inheritance tax. Nevertheless, leaving stocks and other assets to people in your will can reap significant tax advantages.

Capital Gains Tax

When you sell an asset that appreciates in value, you need to pay capital gains tax on the increase in value. Here is a common example: Samantha buys 100 shares of stock, valued at $20 per share. When she sells the stock 25 years later, the shares are worth $50 a piece. While she has held the stock, they increased in value by $30 per share. Samantha typically needs to pay capital gains taxes on this increase.

Currently, the long-term federal capital gains rate for assets held for more than a year ranges from 0-20%. Short-term rates are like those of ordinary income taxes.

Step Up in Basis

If Samantha wants to leave her stock to her children, she could sell the shares and give them the money. Or she could put them in an irrevocable trust which will distribute the shares at her death. However, Samantha will need to pay capital gains taxes first, which can dramatically reduce the amount of money she can leave her children.

Fortunately, if Samantha leaves her shares of stock in her will, then her beneficiaries will realize significant tax savings. When they go to sell their shares, they might also need to pay capital gains tax. But when calculating the amount they need to pay, the initial basis will not be what Samantha paid for the stock 25 years ago. Instead, the initial basis qualifies for a “step up” to the value of the stock on the date Samantha passed away.

Return to the above example: Samantha paid $20 per share in 1993 and the shares are now worth $50 per share on her death. Her heirs inherit the shares and immediately sell when they are worth $51. Because of the step-up basis, Samantha’s heirs pay capital gains taxes on only the $1 per share. If the stock is actually worth less when they sell than it was worth on the date of Samantha’s death, then her beneficiaries will not owe any capital gains tax.

Other Assets and Capital Gains Tax

In addition to stock, you can realize capital gains tax savings with other assets, such:

  • Land
  • Houses
  • Boats
  • Jewelry

However, not all assets are eligible for a step up in basis. Generally, IRAs, pensions, tax-deferred annuities, gifts before death, and assets in an irrevocable trust do not qualify.

Contact a Florida Estate Planning Attorney

Pulling together an estate plan requires a hard look at your assets. You also need an attorney who will pay sufficient attention to different strategies for lowering taxes on the estate. At the Millhorn Elder Law Planning Group in Florida, we will help your draft an estate plan that realizes all of your goals, including tax savings. Reach out to us today to set up a free consultation.



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