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You are here: Experts > Money > Personal Insurance > Life & Health Insurance > Stocks issued to life insurance
Expert: Willard R. Brumbaugh, LUTCF, CSFP - 11/11/2009
Question
My mother recently passed away, leaving a small inheritance to my brother and me. We understand that her life insurance benefits are tax free;however, the life insurance company, because of a business decision, issued to her a small number of stock shares. What are the tax implications of selling them and depositing the proceeds in my mother's estate account. Will it be taxed at the state inheritance level? or personal federal/state tax level? Is there a better method to preserve the inheritance?
Answer
Dear Mary Ann,
It does not matter whether you sell the stock or not; the appraised value of the stock at the time of her death will be included with the other assets of the estate. These will be taxed at the Federal level. If there is a state inheritance tax, I do not know how this will be treated, since California got rid of its state inheritance tax.
With stock there is a step-up of the cost base when they are transferred at death of the owner. There would be no Federal Capital Gains Tax if sold at that time, even when there was no cost basis in the first place. My associate had received a significant number of shares when Metropolitan Life de-mutualized. He held these till he died so that his heirs would get the full value of the stock free of income and capital gains taxes. Had his estate be large enough, they would have had to pay the Federal Estate Tax.
Willard R. Brumbaugh, LUTCF
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