Inherited Stock

IANAL, but here are some thoughts:

1. If there is a requirement that the stock you give to your father must be passed back to you it won't be a completed gift. It may also be disregarded as a purely tax-avoidance maneuver.
2. If it is a legitimate gift with no string attached there are some concerns:

• You are limited in the amount you can give each year without using up your own lifetime exclusion.

• You may not get the stock back.

• If your father incurs debts (expensive medical care?) the stock may need to go to pay that. And you don't get it back. Similarly with any potential lawsuits against your father.

• You may have to wait quite a while to get the stock back, unless your father is at death's door. If that is the case, there may be questions about whether it is a legitimate gift.

• Your brother may get the windfall. Or your dad's wife or girlfriend.

• Your dad may decide to spend it.

• Your dad may get mad at you and disinherit you.

I don't think anything specifically prevents it. But the IRS has a thing called the "step transaction doctrine." If they find someone doing something in a number of legal steps that could not legally be done in a single step, they can "collapse" the transactions and analyze it as if all the intermediate steps didn't happen. In other words, you started with the stock, you ended with the stock, so they would treat it as if you always had the stock.

If they catch you.

Stu

And depending on how it all "smelled". Stock passed back and forth in two weeks time? Smells. Give to your dad and ten years later he gives it to you? Smells fresh as a daisy (to me).

IRC 1014(e) would exclude this asset from a basis step-up if death occurs within one year of the gift.

You're right! I hadn't remembered that. Congress had expressly contemplated this precise situation, and essentially ruled that it works unless the original donee dies within one year.

Stu