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

 In Probate, Revocable Trusts

Photo by Eunice Lituañas on Unsplash


My question is about appreciating assets (stock, mutual funds, etc.) in my mother’s living revocable trust. My mother died in February 2021 at the age of 91 and she was the grantor in her living revocable trust and I am her co-trustee. Mother’s only assets were the financial assets in the revocable trust. The day that mother died has been used for the step-up basis date to establish the value of her assets for inheritance purposes. Since the stocks and mutual funds have appreciated in value since the step-up in basis date, would it be better (considering taxes) to sell the stocks and mutual funds while in the trust and distribute the proceeds to her three heirs (they will not be distributed evenly) OR distribute the assets as they are in the trust? Two of the heirs are to receive 41.66666% each and the third heir is to receive 16.66666%, which makes it kind of difficult to distribute stock. What are the tax implications?


It would be a lot easier to liquidate the stock holdings and distribute the proceeds. While this may result in some capital gains passing through to the beneficiaries, it shouldn’t be that much since February. The additional administrative burden of dividing the distributing the investment holdings in unequal shares outweighs any potential taxes on capital gains that may be realized. (This is the main reason I opposed the progressive proposal of getting rid of the step-up in basis even though as a committed progressive I support the other Biden and Sanders proposals to make the tax code more fair. Here’s a blog post I wrote on the topic.)


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