Question

Andy buys a stock for $10. When Andy dies the stock is worth $20 and is in his name alone. His will leaves his entire estate to Jennifer. When Jennifer receives distribution of the stock it is worth $25. He cost basis is:

a. $10
b. $15
c. $20
d. $25

Answer 1

Jennifer's cost basis for the inherited stock is the fair market value at the time of Andy's death, which is $20, not the original purchase price or the value when she received it.

Step-by-step explanation:

When inheriting investments such as stocks, the cost basis is generally stepped up to the fair market value of the asset at the time of the original owner's death. In the scenario provided, Andy bought the stock at $10, but it was worth $20 when he passed away. Jennifer, the beneficiary, inherits the stock and therefore, her cost basis would be the value of the stock at the time of Andy's death, which is $20. It does not matter that the stock's value increased to $25 by the time she received the distribution.

The correct answer to the question is: c. $20.