How to handle inherited stock

[disneysteve]

Part of the inheritance I'll be receiving within the year (most likely) is two individual stock holdings not in retirement accounts, just owned outright.

EXC 3,200 shares, current value about $133,000.
BNY 205 shares, current value about $9,300.

One of the many decisions I'll need to make is what to do with those two stocks. A big reason he owns them is for the dividends. EXC pays 3.67% and BK pays 2.71%, both solid income numbers in the current environment, so hanging onto them for the very same reason might not be a bad idea as we move toward retirement. As one would expect from a good dividend stock, their share prices have been pretty stable for years so they have been dependable income producers with very little principal volatility.

I know that if I sell them, I get the stepped up cost basis. But then I'd need to figure out what to do with the proceeds. If I keep them, I benefit from the regular income they generate but I add $143,000 to our stock allocation so some tweaking elsewhere would be needed. Plus there is another 500K+ of other investments in the t-IRAs and Roths that I'll need to incorporate into our overall portfolio so rebalancing is going to have to happen regardless.

I'm not sure I even have a firm question at this point but any thoughts or input on the topic would be appreciated.

A secondary question is if I do want to sell the stocks, how do I actually do that? They are not held in a brokerage account. He holds the certificates. I think I just take those to my broker and they can handle it from there. Is that correct?

[LivingAlmostLarge]

Sell the stocks. you want the stepped up basis and you want to diversify and rebalance your portfolio. You can take certificates to broker. Whose your broker?

[disneysteve]

Sell the stocks. you want the stepped up basis and you want to diversify and rebalance your portfolio. You can take certificates to broker. Whose your broker?

What's the reasoning behind you recommending selling?

Rebalancing will be necessary as I'll be inheriting somewhere in the neighborhood of 900K so it's likely going to throw off our portfolio no matter what, but that doesn't mean it will all need to be sold. Let's say our target AA is 60/40 and his portfolio is also 60/40. I might not need to change all that much. But if his portfolio is 40/60, I'll need to do more adjusting.

I understand the benefit of the step up basis, but that would seem to be of less significance with non-growth stocks with fairly stable prices. EXC, for example, is currently within $1 of where it was 10 years ago.

I may sell anyway because over the past couple of years I've been working to simplify our portfolio and narrow our holdings and the inheritance is going to introduce a bunch of new things so I'll need to simplify again. I'm just wondering if there might be a good reason to hold onto certain items.

[kork13]

Why sell? I think of it as a rudimentary sunk cost analysis -- If you had $143k in hand today, would you take it & go buy those two stocks with it all? I expect the answer is no, which would lead me to immediately sell them.

Selling also provides better simplicity, and given that you can sell them all nearly tax-free, I'd prefer to just take it & run, reallocating the money in accordance with YOUR investment plans, not your cousin's.

[Like2Plan]

I understand the benefit of the step up basis, but that would seem to be of less significance with non-growth stocks with fairly stable prices. EXC, for example, is currently within $1 of where it was 10 years ago.

Assuming the account is transfer on death, the brokerage should assign the shares the new stepped up basis when you present the death certificate to them. It will take a little bit longer if it has to be probated through a will, but you will still received the stepped up basis (at the time of death).

Now, sell or keep? Question: Would you purchase these shares right now as part of your overall portfolio? If the answer is Yes--keep. If the answer is No--sell.

[corn18]

Would you buy those stocks today with your own money? If not, sell them.

[myrdale]

Would you buy those stocks today with your own money? If not, sell them.

I second that.

I realize some people get emotional over this type of stuff, "Dad worked at Coca-Cola for 50 years and always invested in the company and he wanted me keep his stocks" I don't buy into that line of thought. Now, if you said he worked at Tesla......

Ultimately for me, it is about being intentional with my money and maximizing my returns, and minimizing risk (not eliminating). Part of the answer is, what is most advantageous for getting the money out? I would hope you could sale it, then roll the proceeds over into your existing retirement account.

[disneysteve]

Would you buy those stocks today with your own money? If not, sell them.

Agreed. I know that's the standard question. No, I wouldn't be going out and buying these stocks. They do pay a good dividend but we already invest in a high dividend yield ETF. So the most logical course of action, within the bounds of our AA, would be to sell the stock and move the money into that fund.

LAL asked about our broker. I'd use TD Ameritrade for this transaction. We also have a Vanguard account but TD has a local office so I could handle it in person rather than having to mail off the certificates.

[Like2Plan]

Agreed. I know that's the standard question. No, I wouldn't be going out and buying these stocks. They do pay a good dividend but we already invest in a high dividend yield ETF. So the most logical course of action, within the bounds of our AA, would be to sell the stock and move the money into that fund.

LAL asked about our broker. I'd use TD Ameritrade for this transaction. We also have a Vanguard account but TD has a local office so I could handle it in person rather than having to mail off the certificates.

I missed the part about the certificates.... Are they titled transfer on death or are they a bequest in the will?

[disneysteve]

I missed the part about the certificates.... Are they titled transfer on death or are they a bequest in the will?

I have to assume they are not titled to transfer on death as he bought them a long time ago, but it definitely falls under the terms of his will because I inherit everything. I guess that means the will needs to be processed first. The step up basis would still apply based on the date of death, right?

[kork13]

I have to assume they are not titled to transfer on death as he bought them a long time ago, but it definitely falls under the terms of his will because I inherit everything. I guess that means the will needs to be processed first. The step up basis would still apply based on the date of death, right?

Correct. The broker will check the value of the stocks as of closing on the date of death, and that sets your basis.