Distributing Inherited Mutual Fund Shares

Q: I have a question regarding inheritance. I was a beneficiary of my father's Mutual Fund investments (appx $70,000). I want to cash this out and distribute among my other siblings but I want to avoid paying as much taxes as I can and help them avoid paying taxes too. I heard of gifting the money too, would this be an option. Thank you for taking time to read my question.

A: Capital gains taxes are based on the difference between the sales amount and the cost basis. The cost basis is the original investment plus any dividends and capital gains that have been reinvested.

If you inherited the mutual fund... as a result of his death, then it should have received a 'step-up' in basis. That means that your father's basis no longer applies. Instead, it's market value used in filing his estate documents is your cost basis.

So there might not be much gain.

Regardless of whether you give them the money as cash or mutual fund shares it will be considered a gift and subject to the $12,000 a year per person rules. If his estate hasn't been settled, then you can probably accomplish the same thing by 'disclaiming' the portion that you want to go to your siblings. Thus you never 'receive' those shares and it's not considered a gift.

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