Basis from selling (formerly joint) assets

[Bob K.]

What is the basis of assets (stocks) in the following situation.

-- Husband and wife buy stocks in a joint account.
-- Stocks in joint account are transferred to separate
individual accounts for both spouses. Individual
accounts are set up as "transfer on death" accounts
with primary beneficiary being spouse.
-- Husband dies and wife inherits stocks as beneficiary.
She then sells the stocks.
-- What is the wife's basis for calculating her capital gain?

I have read (on this forum) that the transfer from joint to
individual accounts would be considered a "gift", so that
the basis of the stocks transferred would retain essentially
the same basis as in the joint account. However, in the
above case, the spouse would be inheriting stocks and would
normally calculate gains based on FMV on the entire amount
of the inherited stock.

Bob K.

 

[Herb Smith]

What is the basis of assets (stocks) in the following situation.

-- Husband and wife buy stocks in a joint account.
-- Stocks in joint account are transferred to separate
individual accounts for both spouses. Individual
accounts are set up as "transfer on death" accounts
with primary beneficiary being spouse.
-- Husband dies and wife inherits stocks as beneficiary.
She then sells the stocks.
-- What is the wife's basis for calculating her capital gain?

In most states, it does not matter whether the stocks are
held jointly or in individual accounts. Only the stock
shares in the spouse's name would receive a "stepped up"
basis adjustment, or in the case of a joint account, only
1/2 the stock shares.

In certain states ("Community property states") the
spouse/beneficiary receives a 100% step up in basis as of
the date of death, but only on the stock shares in joint or
decedents name. Those shares which had been transferred to
surviving spousess name (pre-death) would receive no step up
in basis.