No step up in basis, but if the child makes under $47k ($48k in 2025) in 2024, they are not subject to a capital gains tax so even if there is a capital gain from the sale, it is taxed at 0%.
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In our case, D has no income and S has a tax bracket similar to ours. For folks in situations similar to ours, I found this article interesting to ponder, to the extent it is helpful to anyone.
The person receiving the gift or inheritance doesnât pay the taxes, the giver pays it (thru income taxes or the estate taxes).
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We inherited some money after Hâs mother passed. It was taxable to us.
??? How???
Generally speaking, your inheritance is or could be taxable, though this will depend on the state. Whether youâll pay inheritance tax and how much youâll pay depends on a variety of factors, including which state the deceased lived in and what your relationship to the deceased was. You could pay nothing, or you could pay as much as 18% of the value of the
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Fascinating and thank you.
When you inherit items that have not been taxed (eg traditional IRAs, etc) you are taxed as ordinary income.
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When I inherited money I had to pay inheritance tax on it.
How is that? State inheritance tax? This does vary from place to place.
Yes. Some states do that.
Some states have a very low threshold for estate taxes. Even though a person receiving the inheritance doesnât pay estate taxes personally, money is fungible - in the end, the heirs get less.
In HI, our state tracks the fed laws so no taxes on inheritances until they go over fed limits. No one In close to has ever inherited enough to have to pay inheritance taxes.
In WA, for state taxation purposes,
gifting is unlimited, but whatever stays in a personâs estate at their death is taxed after subtracting the exemption. And this exemption is much lower than the federal one.
Pure cash is not taxed to the recipient as income. Maybe once the 401k or IRA or whatever is converted to cash, the estate could be taxed. As you said, if you donât want the asset, turn it down but you donât HAVE to take it and be taxed on it. And I donât see why it would be taxed as income if the estate pays the tax on it before distribution (cash).
My lucky kids wonât have this problem unless they leave the 401k as a 401k. They can withdraw it and have the estate pay any taxes, and that might be the best choice (itâs not terribly large, and Iâm planning to spend some of it).
But the Picassos and Ming Vases? Oh, might cause big taxes.
IIRC, our financial advisor told us that if our kids inherit whatâs in our 401k or IRA, it wouldnât trigger immediate taxes unless itâs all immediately converted to cash. However, they would have to begin distributions over X # of years which would be treated as income.
Weâre in the process of converting a bunch to Roth IRAs to forestall some of that.
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There is a conversation about how to split up inheritance on theâŠretirement?? thread.
Barring a special situation like a serious disability, addiction, etc, I am a believer of an equal split - they are all equally mine.
And it is often not about the money, but the emotion. I donât want to be dead and one kid be upset because I left another more (ie âlovedâ them more). Not the legacy I want to leave.
I donât want to leave amounts based on perceived need. It may seem l like my art kid âneedsâ it more than my STEM kid, but art kid may have way less expenses. And how do I predict âneedâ years from now? Maybe STEM kid has a horrible divorce or serious illness. Or art kid becomes rich and famous or wins the lottery?
I canât base it on one kid having rich in-laws - they may not be as rich I think or they may not be rich when they die, etc. Or my kid could outlive their spouse and never see a dime. Or in-laws could leave it all to their cat!
I can only base it on what I have and how many kids I have. So, for me, Iâve tried to treat them equally all their lives so why would that stop when I die?
Granted, I may be in an easier situation than some because I donât have any steps, halves, etc.)
And I agree with the poster above - let you kids know how and why you have set it all up they way you did!
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I wonder how often non-cash items like paintings get reported as gifts.
I have a friend whose mother had a number of very valuable paintings and had the daughters come take the ones they wanted. I wonder if those were reported.
The idea of optimizing with respect to tax brackets seems complicated, but ShawWife and I have recognized that it may not make sense to treat each child the same. We like the idea of splitting equally @RookieCollegeMom but it is not clear who will need or benefit most from money down the road. A child who is doing great financially today may develop a debilitating illness. Another child whose economic prospects today seem weaker may make career choices that produce a much higher income down the road. One choice is to say that we canât guess about future need so we give equally. We decided to deal with that uncertainty by creating a trust so the decision can come when uncertainties resolve themselves. The beneficiaries of the Trust are ShawWife and me and our progeny. The trustee is told to focus on health, welfare, housing and education, though there is definitely room for latitude. The Trust helped ShawD build her credit when she bought her first car and now is distributing money to help with the renovation of her house. It also purchased a condo that she and a couple of friends rented at market rates from the Trust when she was an undergrad/grad student. The Trust then rented it out to some med students for a few years before selling it at a substantial profit. But, ShawSon and his wife are doing very well financially, but if he were to need a distribution, the Trust would be there for him as well.
One of the other benefits of the trust is that assets in the Trust are not subject to Federal or State estate tax.
I do like what @BKSquared is doing. Does not work for us.
we hand them checks when we see them once or twice a year (depending on how much we are giving). That way they want to see us!! 
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Secure Act
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One thing that is nice about a loved one awarded Disability under SSDI and/or SSI is they are an eligible benefits dependent under secure 2 and can have any retirement account they inherit disbursed over their lifetime instead of just 10 years.
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