Inheritance of stocks... any keepers?

[HPstache]

I received an early inheritance from my grandparents which is a number of single stocks that we have permission to change to whatever we like.  My IPS says to switch it all into VTSAX and forget about it, but I just wanted to double check that there are not any strategic keepers here to hold in my portfolio.  Most stocks I recieved  are in th 50-150 quantity of shares.  Here is the list:

AEP
AAPL
CL
XOM
IBM
KHC
KMB
MCD
PFE

It seems like this is an old(er) school blue chip portfolio that is targeting dividends.   My favorites are AAPL and PFE for long term potential, but to be honest I have not researched them in depth (hence VTSAX as my IPS).  I'd keep plenty of AAPL if I switched all funds to VTSAX,  so maybe the only one I'd be tempted to keep is PFE?  Thanks for your input.

[HPstache]

And a follow up question.  Is there a website where I can "build" the portfolio I recieved and plot it against VTSAX going forward?  So that I can get and idea if I made the better choice or not a few years down the line?

[bacchi]

And a follow up question.  Is there a website where I can "build" the portfolio I recieved and plot it against VTSAX going forward?  So that I can get and idea if I made the better choice or not a few years down the line?

https://www.portfoliovisualizer.com/backtest-portfolio

[seattlecyclone]

In general I'd say your IPS has the right idea: buy index funds. The only thing that might give me pause is if the stock comes with a bunch of unrealized gains attached. Even so, tax rates are pretty low. You may find advantage to spreading the sale over two years if that would keep you from crossing a tax bracket line, otherwise just do it.

[HPstache]

And a follow up question.  Is there a website where I can "build" the portfolio I recieved and plot it against VTSAX going forward?  So that I can get and idea if I made the better choice or not a few years down the line?

https://www.portfoliovisualizer.com/backtest-portfolio

Fantastic website.  Thank you!  I built the portfolio and VTSAX beats the portfolio in all the time ranges I tested.  The only individual stocks to beat VTSAX  for the last 5 years or so are AEP, AAPL & MCD .  I am really strongly leaning towards converting all to VTSAX, which kind of confirms my IPS.

[bwall]

In general I'd say your IPS has the right idea: buy index funds. The only thing that might give me pause is if the stock comes with a bunch of unrealized gains attached. Even so, tax rates are pretty low. You may find advantage to spreading the sale over two years if that would keep you from crossing a tax bracket line, otherwise just do it.

I think that with an inheritance, the recipient would get a stepped up tax basis, thus making the unrealized gains very minimal; in other words, any appreciation that occurred since the decedents passing and the time of sale of stock.

Can any CPA's confirm or correct this statement?

[seattlecyclone]

In general I'd say your IPS has the right idea: buy index funds. The only thing that might give me pause is if the stock comes with a bunch of unrealized gains attached. Even so, tax rates are pretty low. You may find advantage to spreading the sale over two years if that would keep you from crossing a tax bracket line, otherwise just do it.

I think that with an inheritance, the recipient would get a stepped up tax basis, thus making the unrealized gains very minimal; in other words, any appreciation that occurred since the decedents passing and the time of sale of stock.

Yes, cost basis resets upon inheritance. The OP mentioned it was an "early inheritance," which I assumed meant the grandparents are still alive and are giving a significant gift as an advance on the actual inheritance. That assumption could be wrong! Cost basis does not reset on gifts given during your life though.

[bwall]

In general I'd say your IPS has the right idea: buy index funds. The only thing that might give me pause is if the stock comes with a bunch of unrealized gains attached. Even so, tax rates are pretty low. You may find advantage to spreading the sale over two years if that would keep you from crossing a tax bracket line, otherwise just do it.

I think that with an inheritance, the recipient would get a stepped up tax basis, thus making the unrealized gains very minimal; in other words, any appreciation that occurred since the decedents passing and the time of sale of stock.

Yes, cost basis resets upon inheritance. The OP mentioned it was an "early inheritance," which I assumed meant the grandparents are still alive and are giving a significant gift as an advance on the actual inheritance. That assumption could be wrong! Cost basis does not reset on gifts given during your life though.

Thanks for the quick primer.

And, next time I'll have to read closer. :)

[pasadenafr]

AAPL and PFE would also be the only ones I'd keep as "fun money", keeping them at a reasonably low % of my portfolio.

What's your cost basis? Did it reset?

[scottish]

AAPL and PFE would also be the only ones I'd keep as "fun money", keeping them at a reasonably low % of my portfolio.

What's your cost basis? Did it reset?

^ This.   apple and pfizer.    Might want to get rid of IBM before the next reporting period, they have some pretty big challenges coming up.   <shrug>

[HPstache]

Thanks for the responses.  To answer some of the questions,   yes, by early inheritance I meant my grandparents are still alive and doing great.  I will have to ask about the tax implications before I sell.  The grandkids were told that they paid the taxes on the gains, but I need to dig in a little deeper on that... is that even possible?

[scottish]

In Canada capital gains are itemized on the tax return.   Without the tax return I've found it's pretty hard to tell what's been claimed/reported.

[seattlecyclone]

Thanks for the responses.  To answer some of the questions,   yes, by early inheritance I meant my grandparents are still alive and doing great.  I will have to ask about the tax implications before I sell.  The grandkids were told that they paid the taxes on the gains, but I need to dig in a little deeper on that... is that even possible?

They could have sold the stock, paid the tax, bought it back again to reset the basis to current values, and then given it to you. I don't know of a mechanism to pay tax on the gains without actually realizing the gains.

[HPstache]

Thanks for the responses.  To answer some of the questions,   yes, by early inheritance I meant my grandparents are still alive and doing great.  I will have to ask about the tax implications before I sell.  The grandkids were told that they paid the taxes on the gains, but I need to dig in a little deeper on that... is that even possible?

They could have sold the stock, paid the tax, bought it back again to reset the basis to current values, and then given it to you. I don't know of a mechanism to pay tax on the gains without actually realizing the gains.

Ok, well they were working with a financial planner on this whole thing.  I will have a one on one with him sometime this week before the shares transfer so I'll be able to ask all of the important questions then.  Thanks for the responses.

[Rob_bob]

I sell Puts and covered calls on XOM.  So if you have at least 100 shares of it you might want to sell out of the money covered calls until it's gone.

[MustacheAndaHalf]

I received an early inheritance from my grandparents which is a number of single stocks that we have permission to change to whatever we like.

I'm guessing those stocks are worth roughly $100k?  Your grandparents can avoid dealing with gift / estate issues if they limit contributions to $16k between each pair of people.  So your grandmother could gift you $16k, and your grandfather another $16k each year.  They could gift you $32k a year and avoid gift tax reporting.  Or if you have a spouse, including them would allow $64k/year in gifts.

Why aren't they spreading this gift over a number of years?

[HPstache]

I received an early inheritance from my grandparents which is a number of single stocks that we have permission to change to whatever we like.

I'm guessing those stocks are worth roughly $100k?  Your grandparents can avoid dealing with gift / estate issues if they limit contributions to $16k between each pair of people.  So your grandmother could gift you $16k, and your grandfather another $16k each year.  They could gift you $32k a year and avoid gift tax reporting.  Or if you have a spouse, including them would allow $64k/year in gifts.

Why aren't they spreading this gift over a number of years?

It's less than that, but you're not out of the ball park.  I am not sure their exact reasoning, but I know they are working with both a respected estate planner and financial advisor, so I know their reasoning is well informed and exactly how they want it to be.

[HPstache]

Just wanted to bump this thread as I have more information on these inherited funds.  The answer is "yes" all of these stocks have documented unrealized gains/losses.  I am able to see all of the gains/losses in my account and I spoke to the advisor to this account and he told me that I can trade all of the single stocks for VTI but I will pay tax on the gains.  However, losses offset gains, and it just so happens if I add up all of the gains and losses it's less than a $100 gain.  This makes me want to just convert everything to VTI and pay tax on the $100 and be done with it.  HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.  I could also keep AAPL and PFE as those are the two I like the most (also gainers) and end up with a net loss and protect the value of those funds, call it $20K, from the 1-1.2% trade cost.

Thoughts?

[FLBiker]

Just wanted to bump this thread as I have more information on these inherited funds.  The answer is "yes" all of these stocks have documented unrealized gains/losses.  I am able to see all of the gains/losses in my account and I spoke to the advisor to this account and he told me that I can trade all of the single stocks for VTI but I will pay tax on the gains.  However, losses offset gains, and it just so happens if I add up all of the gains and losses it's less than a $100 gain.  This makes me want to just convert everything to VTI and pay tax on the $100 and be done with it.  HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.  I could also keep AAPL and PFE as those are the two I like the most (also gainers) and end up with a net loss and protect the value of those funds, call it $20K, from the 1-1.2% trade cost.

Thoughts?

It has been a long time since I've had stocks with a financial planner, but this doesn't make sense to me.  Are you saying that the broker will charge you 1-1.2% to make those trades?  If so, I would transfer the entire portfolio in kind (meaning just transfer the shares as is) to a discount broker and just sell them there.  I guess it's possible that they could charge you some crazy fee to do this (so you should probably check) but I don't know why the commissions on those trades would be ~$1000.  You're talking 10 trades (9 sells, 1 buy) -- that's $100 a trade.

[HPstache]

Just wanted to bump this thread as I have more information on these inherited funds.  The answer is "yes" all of these stocks have documented unrealized gains/losses.  I am able to see all of the gains/losses in my account and I spoke to the advisor to this account and he told me that I can trade all of the single stocks for VTI but I will pay tax on the gains.  However, losses offset gains, and it just so happens if I add up all of the gains and losses it's less than a $100 gain.  This makes me want to just convert everything to VTI and pay tax on the $100 and be done with it.  HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.  I could also keep AAPL and PFE as those are the two I like the most (also gainers) and end up with a net loss and protect the value of those funds, call it $20K, from the 1-1.2% trade cost.

Thoughts?

It has been a long time since I've had stocks with a financial planner, but this doesn't make sense to me.  Are you saying that the broker will charge you 1-1.2% to make those trades?  If so, I would transfer the entire portfolio in kind (meaning just transfer the shares as is) to a discount broker and just sell them there.  I guess it's possible that they could charge you some crazy fee to do this (so you should probably check) but I don't know why the commissions on those trades would be ~$1000.  You're talking 10 trades (9 sells, 1 buy) -- that's $100 a trade.

I agree it's ridiculous... I will try and understand exactly why by asking him.  However, moving to another broker is not an option, but I don't want to explain why in this thread.  Otherwise, yes I would have had this in my Vanguard account in a heartbeat.

[FLBiker]

Just wanted to bump this thread as I have more information on these inherited funds.  The answer is "yes" all of these stocks have documented unrealized gains/losses.  I am able to see all of the gains/losses in my account and I spoke to the advisor to this account and he told me that I can trade all of the single stocks for VTI but I will pay tax on the gains.  However, losses offset gains, and it just so happens if I add up all of the gains and losses it's less than a $100 gain.  This makes me want to just convert everything to VTI and pay tax on the $100 and be done with it.  HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.  I could also keep AAPL and PFE as those are the two I like the most (also gainers) and end up with a net loss and protect the value of those funds, call it $20K, from the 1-1.2% trade cost.

Thoughts?

It has been a long time since I've had stocks with a financial planner, but this doesn't make sense to me.  Are you saying that the broker will charge you 1-1.2% to make those trades?  If so, I would transfer the entire portfolio in kind (meaning just transfer the shares as is) to a discount broker and just sell them there.  I guess it's possible that they could charge you some crazy fee to do this (so you should probably check) but I don't know why the commissions on those trades would be ~$1000.  You're talking 10 trades (9 sells, 1 buy) -- that's $100 a trade.

I agree it's ridiculous... I will try and understand exactly why by asking him.  However, moving to another broker is not an option, but I don't want to explain why in this thread.  Otherwise, yes I would have had this in my Vanguard account in a heartbeat.

Oh, OK.  Well, if you can't move it then I guess you just have to accept it.  Can you move it once you've switched it to VTI?  It'd be lame to have an ongoing relationship with this guy.  At the same time, this is a gift, so it's great whatever the terms end up being.

[HPstache]

Just wanted to bump this thread as I have more information on these inherited funds.  The answer is "yes" all of these stocks have documented unrealized gains/losses.  I am able to see all of the gains/losses in my account and I spoke to the advisor to this account and he told me that I can trade all of the single stocks for VTI but I will pay tax on the gains.  However, losses offset gains, and it just so happens if I add up all of the gains and losses it's less than a $100 gain.  This makes me want to just convert everything to VTI and pay tax on the $100 and be done with it.  HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.  I could also keep AAPL and PFE as those are the two I like the most (also gainers) and end up with a net loss and protect the value of those funds, call it $20K, from the 1-1.2% trade cost.

Thoughts?

It has been a long time since I've had stocks with a financial planner, but this doesn't make sense to me.  Are you saying that the broker will charge you 1-1.2% to make those trades?  If so, I would transfer the entire portfolio in kind (meaning just transfer the shares as is) to a discount broker and just sell them there.  I guess it's possible that they could charge you some crazy fee to do this (so you should probably check) but I don't know why the commissions on those trades would be ~$1000.  You're talking 10 trades (9 sells, 1 buy) -- that's $100 a trade.

I agree it's ridiculous... I will try and understand exactly why by asking him.  However, moving to another broker is not an option, but I don't want to explain why in this thread.  Otherwise, yes I would have had this in my Vanguard account in a heartbeat.

Oh, OK.  Well, if you can't move it then I guess you just have to accept it.  Can you move it once you've switched it to VTI?  It'd be lame to have an ongoing relationship with this guy.  At the same time, this is a gift, so it's great whatever the terms end up being.

I think the fee he is describing falls under the "equity transaction" section of this explanation of fees?

https://olui2.fs.ml.com/publish/content/application/pdf/gwmol/pricing-investment-solutions.pdf

I completely agree it's BS, I might dig a little deeper as to if I can transfer these funds to my Vanguard account with the blessing of my grandparents...

[talltexan]

It sounds like there are family reasons that selling/rolling the positions will be costly. Is it easy to just invest the dividends? You could create a discount brokerage account, and use the monthly dividends--setting aside taxes--just to buy ATM calls on $VTI, rolling as new money comes in. Leave the rest of the portfolio alone to keep the tax man and the grandparents happy, then build up that equity in the thing you want.

[FLBiker]

Wow -- that fee schedule is incredible.  In their example, you can buy $10,000 of a stock with a commission of $241.25!  I can't believe anyone is willing to accept that.

[talltexan]

Just to clarify my post from the day before, when I say "invest the dividends", I mean "get the dividends the hell away from these over-priced managers".

[bwall]

HOWEVER, he also told me that the trade will cost 1-1.2% of the value to make (rolling my eyes a little bit, but whatever), so I have to factor that in.

Broker fees are not set by law in any state. It's whatever is voluntarily agreed upon between the service provider and the customer. If they say 1% and you say 'wow! that's expensive', then you've agreed.

In other words, this fee should be up for negotiation if you are not happy with it.

[reeshau]

This is found money.  The fees are onerous, but don't let the fee tail wag the investing dog.  What you should own is a separate question from where you should hold it.  You should try and move away from that brokerage regardless of holdings, but if you are entangled there, it is no reason to hold something foreign to you.

Unless you are committed to learning about investing in individual stocks, and following those companies on an ongoing basis (not just as a consumer, but as a shareholder)  then you should stick with your strategy and convert to your index fund.  If you do decide to keep them, be sure to commit to it by updating your IPS, so you understand why you did it in 10 or 20 year's time.