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What is an Inherited Stock?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Inherited stock is any stock that are passed from an owner to a recipient or heir. Often, inherited stock is received when the owner passes away, and the shares have been earmarked in a last will and testament for the use of a specific heir. At other times, the shares are part of a trust that is structured to provide financial support for a loved one until he or she reaches a certain age, when full access to the stock is granted.

While inherited stock is often accepted with gratitude, it is important to remember that the reception of this type of assets may also create something of a financial burden. Depending on how the transfer of the stock was arranged, the heir or beneficiary may be required to pay taxes on those shares out of pocket. In many nations, this taxation is based on the amount of appreciation the shares generate from the date that the inheritance is actually received. This is true even of the cost basis for the shares increased during the period where the recently deceased owner continued to control those shares. It is not unusual for the deceased to have previously made arrangements to transfer the shares in a manner that creates the smallest amount of capital gains taxes possible for the heir.

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There is often the possibility that arrangements will be made to allow specific heirs to gain control of inherited stock only after qualifications put in place by the original owner have been met. For example, a parent with minor children may provide in his or her will that each child is entitled to a certain number of shares of a specific stock option only after they reach a calendar age specified in the terms of a trust. In the interim, an administrator manages the trust and is charged with utilizing any income generated from those shares to provide the children with food, clothing, shelter, education, and any other specifics identified in the trust agreement.

When the inherited stock is passed on to an adult heir, the process typically involves transferring those shares into the name of the recipient. In many nations, this process can be accomplished in a very short period of time. Unless some pre-existing codicil or provision is attached to the ownership of those shares, the heir is free to make use of the inheritance in any way he or she chooses. This can include selling the inherited stock for an immediate influx of cash, or selling a portion of the shares to settle any taxes that are due and retaining the rest in an investment portfolio. The heir may also choose to simply allow the shares to continue generating an income and receiving the annual dividends from those investments.

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