Should You Sell Inherited Stocks? What to Know

An inheritance can include cash, securities, real estate or other assets. When you inherit stocks, there are both tax and practical considerations to weigh. The guidance below explains how inherited shares are generally treated for tax purposes, what executors commonly do, and practical steps beneficiaries can take when deciding whether to keep, sell or transfer inherited investments.

How are stocks taxed when you inherit them?

If a spouse or common-law partner is the named beneficiary, transfers are often tax-deferred. The discussion below focuses on non-spouse beneficiaries and the typical tax outcomes for different account types.

For non-spouse beneficiaries, tax consequences usually arise at the estate level rather than directly for the individual heir. The estate is responsible for settling taxes owing before distributing net proceeds to beneficiaries.

Registered accounts—such as registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs)—are fully taxable based on the account’s market value on the date of death. That market value is treated as income of the deceased and is reported on the final tax return, with taxes paid by the estate. Any investment growth that occurs after death is taxable to the beneficiary or the estate, depending on the beneficiary designation:

• If the estate is the beneficiary, the estate will report and pay taxes on any subsequent growth.
• If an individual is named as beneficiary, that person may be taxed on income or growth that accrues after death.

A tax-free savings account (TFSA) remains tax-free at the date of death; however, investment growth that occurs after death is taxable to the estate or to the named beneficiary.

Non-registered accounts are treated differently. On death, the market value of each holding is compared to its adjusted cost base to determine a capital gain or loss; any resulting tax liability is handled by the estate. Because non-registered accounts do not typically allow a direct beneficiary designation, the estate bears tax responsibilities when those assets are realized.

If stocks are transferred to a beneficiary without being sold, that in-kind transfer does not trigger additional tax on growth that occurs after death. Instead, the recipient’s adjusted cost base for future capital gains calculations will generally be the market value on the date of death.

Do you have to sell stocks you inherit?

Executors often sell estate assets to generate cash to pay taxes, debts and estate administration costs; the net cash is then distributed to beneficiaries. Some executors sell holdings to reduce exposure to market volatility and limit the estate’s ongoing risk.

However, executors can also transfer assets in kind to beneficiaries—meaning the stock itself is passed along rather than being sold. In that case, the beneficiary receives the shares and becomes responsible for any future decisions and tax implications related to those holdings.

What to do with an inheritance of stocks

Deciding whether to keep inherited stocks or convert them to cash comes down to fit, risk tolerance and financial goals. Inheriting a position is not the same as choosing it: you did not buy those shares for your portfolio, so treat the inheritance as a new decision point rather than an obligation.

Think of inherited stocks like receiving someone else’s clothing: keep what fits and suits your style, and let go of what doesn’t. Evaluate whether the shares complement your asset allocation, whether they expose you to concentrated risk, and whether you have the time and expertise to manage them if they remain in a self-directed account.

Should you keep the investments at the same financial institution?

Some beneficiaries prefer continuity and keep investments where they already sit, either with the deceased’s advisor or in the same brokerage account. That can be sensible if the advisor relationship is strong and appropriate for your needs.

But don’t remain with an advisor or platform solely out of convenience. If you are taking over an investment relationship, treat it like any other professional engagement: interview the advisor, review fees and services, and confirm that their approach fits your goals. Similarly, if the account is self-directed and you lack investing experience, consider seeking professional advice before managing a larger, inherited portfolio yourself.

Tax implications of selling stocks after you inherit them

When you inherit stocks, the market value at the deceased’s date of death has already been considered for tax purposes. For registered accounts, appreciation up to the point of transfer will have been included in the deceased’s final tax reporting or taxed to the estate; any further appreciation may be taxable to the beneficiary, depending on the situation.

If shares are transferred in kind from a tax-sheltered account, the recipient’s adjusted cost base will generally be the greater of the value at death or the value at transfer. This determines future capital gains or losses if the shares are later sold in a non-registered context.

For non-registered holdings, the market value at death typically becomes the recipient’s cost base for future capital gains calculations, because the estate has already accounted for unrealized gains to that point.

Final thoughts

Don’t feel compelled to keep inherited stocks just because they were left to you. There is usually little tax benefit to holding on to them purely for sentimental reasons. Receiving cash instead of in-kind securities often simplifies matters and makes it easier to align your investments with your own goals—whether that means building a new portfolio, topping up existing accounts, paying down debt or using some of the inheritance for personal needs.

Read more from Ask a Planner:

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• “We’re well off in retirement. How can we pay less tax?”
• How to withdraw RESP funds
• Can you move income back and forth between spouses?