A TOD occurred, now estate requests partial liquidation of stock $100k & pay back to estate. How is that recorded by individual that rec'd TOD? Gift?.. estate tax?

[j_lagler_20]

A TOD occurred $200k+, now estate requests partial liquidation of stock $100k & pay back to estate. How is that recorded by individual that rec'd TOD? Gift?.. estate tax? 

[dmertz · Accepted solution]

I'm not sure that it's necessary that the $100k that needs to be returned to the estate for the purpose of satisfying the estate's debts be derived from the sale of the stock that transferred via TOD.  I suspect that the estate simply needs an amount of money back from each beneficiary in proportion to amount each beneficiary received as other than a pecuniary bequest.  Whether you choose to fund that $100k through a sale of the stock is probably your choice.

If you do sell stock to come up with the funds, as bwa said, your cost basis in the stock is the stepped-up value as of the date of death (or the alternate valuation date, if the estate elected to use the alternate valuation date).

The sale of the stock would be reportable on your tax return.  Gains relative to the stepped-up basis would be taxable to you as in any stock sale.  The $100k that you give back to the estate is not itself reportable anywhere.  However, if the estate is administered in a state that has an inheritance tax and you are subject to such tax, the amount returned to the estate would reduce the amount on which you are subject to inheritance tax (which is generally paid by the estate on your behalf).

[bwa]

If you are referring to a Transfer on Death stock ownership, why is the Estate involved?  It usually goes directly to the named individual.

[j_lagler_20]

TOD is going to individual(s)... but estate passed all $ to individuals.. so there is a request for each individual to liquidate a portion of TOD to pay estate tax bill.. so can that be construed as a gift back to estate..or how is sale/gains/ money back recorded ..when liquidated..on individual tax return.

[bwa]

For the individual it would reduce the (nontaxable) inheritance.  It would not be a gift.  Rather, it could be accounted for as a increase in basis of the stock.

[j_lagler_20]

Ok.. so that portion of the TOD, liquidated for the estate, would drive cost basis higher. what would be cost basis of the inheritance stock at time of TOD transfer? original purchase price or price at date of transfer? thanks .. your comments have helped.

[TomYoung]

It's not an increase in basis of the remaining stock.  You're going to deduct that basis when you report the sale, so you can't "double dip" and also get a higher basis in the remaining stock.