If you inherit stock and later sell it, you will generally pay tax on your gains from when the original owner passed away but not on their gains up until that point. To calculate these gains, you need to know the stock value on the day that person died.
Calculating Date of Death Value
The principle seems relatively simple: The basis value for inherited stock, that you use to compute gains and taxes if you ultimately sell, is the fair market value of the stock on the day the previous owner died. You generally will not need to pay tax simply on inheriting the stock but if you're unsure if you owe estate tax, it can be a good idea to contact an expert like a lawyer or an accountant.
But as anyone who invests in the stock market knows, stock prices can fluctuate a great deal during the day. For that reason, you typically average the day's high and low stock prices, which you find through your brokerage or many online stock price research tools, to calculate the appropriate price.
If the person happened to die on a weekend or holiday, you should use this formula for the next and previous trading days, then average those values, to find the stock value on the person's date of death.
The Alternative Date
The executor of an estate can, if they so choose, instead set the basis for any inherited stock from the estate to be six months after the person passed away. In that case, you would use the same formula for computing the price on that date as you would use on the actual date of death.
Handling Inherited Stock
When someone dies with a stock brokerage account, it generally takes some paperwork to get that account and stock transferred to the rightful heir. Generally, you will need to at least provide a death certificate, proving the owner has in fact died, and a court letter appointing someone the executor. If the account was a jointly held account, the situation can be more complicated.
Generally, the brokerage will set up a new account for either the beneficiary or the dead person's estate itself. Naturally, the beneficiary will need to provide Social Security number, address and other such information to the firm's satisfaction.
It generally isn't possible to trade stocks in a deceased person's account or otherwise move funds around until the legalities have been resolved.