You are working to make life easier for your executor by using your Executor.org plan to think through the numerous steps an executor must undertake in the executor role. You are organizing important documents and you’ve even included important tax records. Have you remembered to organize and save your stock records?
Telling your executor what stocks you own is great, but it is better if you include some records with the list. And don’t forget to tell your executor if you use a financial planner. Your executor will benefit greatly from the knowledge your professional team (people like your accountant, estate attorney, financial planner, etc.) brings to the table.
Assets related to investments are important to you and your taxes. Each time you sell some stock, for example, a calculation will be made to determine the tax implications of a gain or loss from the transaction. This involves something called a tax basis. Usually working with your accountant, your executor will have to file your taxes. Having this information available in the event that you sold stock during the year of your death is important.
Tax basis is calculated using the cost of the stock when it was purchased compared to the sale price. Therefore, having record of the stock purchase is important. Assets like stocks either appreciate (increase in value) or depreciate (decrease in value). Appreciation means you will likely owe taxes and depreciation means you will likely be able to reduce your tax burden. Calculating tax basis and filing taxes in the event of the sale of stock can be complicated. Therefore we highly recommend you rely on a reputable accountant for help. You don’t have to go it alone!
And remember, if you are purchasing more stock with the dividends a stock is paying you (through a dividend reinvestment program, for example), each purchase must be tracked—it impacts the tax basis. (Keep this in mind for mutual funds, too.)
Having records of the stock purchase is important, especially when you sell the stock. But it is recommended that you hang on to these records even after the sale. Accountants usually recommend keeping the purchase and sale records for at least four years after the sale is complete. Though, we recommend contacting your accountant for specific advice in case you need to keep these records longer.
A quick note for beneficiaries who inherit stock–pay attention to the stepped up basis rule. If you have a gain on a stock, you should be able to avoid paying taxes on that sale if the owner of those shares passes away. If someone dies, the basis of that stock is “stepped up” on the day of their death. So if you bought a stock for $10 and it is worth $100 on the day of your death, you do not have to pay tax on the $90 gain based on today’s current tax code.
Executor.org helps you as you plan your estate and helps executors as they execute the executor duties. Personalize your plan for wherever you are in the process and watch as you successfully complete the estate planning or executor role.