Inheriting a stock portfolio presents a significant financial opportunity as well as a challenge. Should you keep the stocks you inherit, or sell them and replace them with investments that are more suitable to your financial goals and risk tolerance?
Many people hesitate to sell inherited assets due to emotional ties, but it’s essential to ensure your decisions are based on financial merit rather than sentiment. Your benefactor likely intended for you to use these assets wisely, which might mean selling positions and reinvesting in a way that better suits your current needs and goals.
Risk and Diversification
First, assess the diversification of your inherited portfolio. Portfolios heavily concentrated in a single stock pose excessive risk. It’s important to analyze the diversification to ensure it aligns with your overall financial strategy and current portfolio. Ensuring your investments are diversified can help mitigate risk and provide more stable returns. Learn more about “intergenerational diversification” by clicking here.
Risk Tolerance and Investment Horizon
Understanding your risk tolerance and your investment horizon is crucial. If the market takes a downturn, can you afford to wait for it to recover before you need to use your savings? For those needing funds in the short term, a high-risk portfolio may not be suitable. Reflecting on these factors can help you decide whether to keep or adjust your inherited assets.
Tax Considerations
Tax implications of inherited investments vary widely across jurisdictions. In the U.S., heirs benefit from a “stepped-up cost basis,” meaning the value of the inherited asset is adjusted to its market value at the date of the owner’s death, minimizing capital gains taxes if the asset is sold. However, in Israel, there’s no such step-up, potentially leading to significant tax liabilities if appreciated inherited stocks are sold. Consulting with both a financial advisor and a tax professional is essential to navigate these complexities and make informed, strategic decisions. (Profile Investment Services, Ltd. can facilitate meetings with tax professionals and advise on questions to ask, but we do not provide tax advice.)
If you recently received a U.S. dollar inheritance, contact us at (02) 624-2788 or sign up for a free Cross-Border Financial Evaluation at profile-financial.com/call.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published October 1, 2024.