Should Executor Sell Stock in Estate or Distribute Shares to Beneficiaries?

 In Probate
Stock in estate

Photo by Carlos Muza on Unsplash

Question:

My mother is 96 and has most of her assets in stocks. She has five children and wants to divide the assets in five equal parts. I am currently named as the executor of her estate. How does one decide how stocks are split? Is each stock holding divided in five?

Response:

This is a common situation in estates. Should stock be split among beneficiaries or sold and the proceeds split? It’s much easier to simply liquidate the stock holdings and distribute cash, and this is the advice I usually give clients. After your mother’s death, the stock will receive a step-up in basis so there will be little or no capital gains subject to tax once the stock is sold.

Despite the fact that this is usually the easier way to go, there are instances where clients choose to hold on to the stock. Sometimes they have an emotional attachment because the stock represents a nest egg that a parent or grandparent created by saving and investing over many years. In other cases, the property may not receive a step-up in basis upon death because it’s in trust. For instance, if the property is passing to the next generation because a trust created by a grandparent or pre-deceased parent is now being terminated, it will not receive a step-up and its liquidation would cause an otherwise unnecessary capital gains tax. In such a case, it makes more sense to split the stock among the various beneficiaries.

Often, if that’s the course the family chooses to take, its most easily accomplished by each of the beneficiaries creating an account in the same investment house where the estate or trust already holds the stock. Then it’s relatively simple for the broker to split the stock among the various accounts.

Related Articles:

What’s a “Step-Up” in Basis and Why Would You Want It?

As Trustee Should I Distribute Investments or Liquidate them to Distribute Cash?

What’s the Best Method to Distribute Tangible Personal Property in an Estate?

Showing 2 comments
  • Larry Smith
    Reply

    Question, I always thought that if the stock was sold before distributed, it was taxed to the Moms estate, so more prudent to distribute the stock which is easy. Been there before, with the advise of my accountant. What am I missing?

      • Harry Margolis
        Reply

        Technically, that’s right, but practically not. If the estate sells the stock, any gain will have to be reported on the estate’s tax return. But there almost certainly won’t be any tax to the estate for three reasons: First, as is explained above, due to the step-up in basis, there will be little or no gain to report in the first place. Second, the estate will be able to deduct some expenses, such as legal and accountant’s fees if they’re not already deducted on an estate tax return. Third, any taxable gain that remains may still be passed through to the beneficiaries.

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