When a child inherits a brokerage account, the assets typically transfer to a new account, often triggering a "stepped-up cost basis" to the market value on the date of death, which minimizes capital gains taxes. If the child is a minor, a custodian (often a guardian) must manage the assets until they reach the age of majority.
He can. It's called an UTMA. He just needs your children name and SSN and the account is in his name and your child(ren) is the beneficiary so any money he puts in belongs to them when they turn 18 or 21 depending on your state. But if something happens to them the money reverts back to the primary owner.
When you inherit a brokerage account, the cost basis of the assets is usually "stepped up" to the fair market value on the date of the deceased's death. If the account's value grows before you sell the assets, you'll be taxed on the capital gains.
Tax implications of inherited stock
Typically, beneficiaries are not directly responsible for paying taxes. Instead, the trust's income, including any dividends or capital gains from the stock, is generally subject to income tax.
If your inheritance includes an IRA or other tax-deferred account, you generally have 10 years to withdraw the assets unless an exception applies. While, in many cases, you'll be subject to annual required minimum distributions (RMDs), “you have a lot of flexibility on how much to withdraw each year,” Curtin says.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
You can shelter your shares from CGT and Dividend Tax going forward by holding them in an ISA (individual savings account). The simplest way to do this might be to sell the shares and pay the proceeds into an ISA, although this could (as mentioned above) also trigger a CGT charge if they've increased in value.
Transfer assets into a trust
Because those assets don't legally belong to the person who set up the trust, they aren't subject to estate or inheritance taxes when that person passes away. Setting up a trust also has other financial benefits, such as helping the estate avoid probate.
On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon the account owner's death.
What Assets are Exempt From Inheritance Tax?
You can typically inherit a large amount without federal taxes because the tax applies to the deceased's estate, not the recipient, and the exemption is very high: $13.99 million in 2025 and $15 million in 2026 per person, meaning most inheritances fall below this threshold. The key is that the estate's total value must exceed these limits for any tax to be owed by the estate. Inheritances themselves (cash, property) are generally not income, but earnings on them (like interest/dividends) or pre-tax retirement funds (like IRAs) are taxable.
When most people think about estate planning, they focus on their will. However, many don't realize that beneficiary designations on financial accounts can override the instructions in your will. This can lead to unintended consequences if not properly managed.
Roth IRAs stand out as the best type of account to inherit due to their tax-free growth and distributions.
Yes, you can gift stock to your child without paying immediate tax by using the annual gift tax exclusion (up to $19,000 per person in 2025/2026) or by transferring appreciated stock, which moves the capital gains tax burden to the child, who might pay little or no tax if in a low bracket when they sell. The key is that you, the giver, avoid capital gains tax, but your child takes your original cost basis and pays tax only when they sell, ideally when in a low tax bracket, say to benefit from low capital gains rates for younger investors, according to Charles Schwab.
However, there is a little-known IHT loophole that does not have a set limit or post-gift survival requirement, known as 'Gifts for the Maintenance of Family'. Any gift that qualifies under this loophole is exempt from IHT. If HMRC decide that the gift was larger than reasonable, the reasonable part is still exempt.
Capital Gains Tax simply refers to the tax levied on the profit realised upon the sale or disposal of an asset. Shares transferred to your children may be subject to the payment of this tax. However, if your spouse is the beneficiary of such a transfer, then CGT is not payable.
To avoid capital gains tax on inheritance, sell inherited assets immediately at their stepped-up basis (value at death) to realize no gain, use it as your primary residence for the Section 121 exclusion, donate it to charity, or use a 1031 exchange for real estate; the key is leveraging the "stepped-up basis" to erase prior gains, as the cost basis resets to the value on the date of death, notes Gudorf Law and SmartAsset.com.
Taking both 7 year periods together means that you need to know how much of the NRB has been used on chargeable transfers ('chargeable' gifts) for up to 14 years before death. This is what's known as the 14 year shadow (or sometimes the 14 year rule).
There are 2 primary methods of transferring wealth, either gifting during lifetime or leaving an inheritance at death. Individuals may transfer up to $15 million (as of 2026) during their lifetime or at death without incurring any federal gift or estate taxes. This is referred to as your lifetime exemption.
The 7-3-2 rule is a financial strategy for wealth building, suggesting it takes 7 years to save your first major financial goal (like a crore), then accelerating to achieve the next goal in 3 years, and the third goal in just 2 years, leveraging compounding and disciplined, increased investments (like a 10% annual SIP hike). It highlights how returns compound faster over time, drastically reducing the time needed for subsequent wealth targets, emphasizing patience and consistent, growing contributions.
Want to make your assets virtually untouchable by creditors and lawsuits? Equity stripping may be the answer. This advanced technique involves encumbering your assets with liens or mortgages held by friendly creditors, such as an LLC or trust you control.