Question:
I am the trustee for mother’s revocable trust containing close to $500,000 in mutual funds, cash and some stocks. There are six equal beneficiaries. Should we liquidate the funds and distribute the proceeds or divide them and transfer the actual investments? The management company says we have to choose one method for all. Also, for the new EIN, what should be the origin of fund date, the original trusts funding date or my mother’s date of death?
Response:
The management company is correct. It’s definitely much easier to choose the same method for everyone. And it’s also easier to liquidate the holdings rather than to transfer them, especially with six different beneficiaries. If you liquidate the holdings and then distribute them, you can do so by writing checks or wire transfers. In contrast, the easiest way to transfer the actual investments is for each beneficiary to set up a personal account at the same investment company where the trust investments are held. We’ve seen estate distributions delayed because one heir never gets this done, which is one of the reasons we usually favor liquidation.
In terms of getting the new tax identification number (EIN), use your mother’s date of death. That’s the date on which the trust became irrevocable. That’s also the date the investment management company should use for valuing the tax basis for the investments. As a result of this step-up in basis, there should be little or no capital gains realized on their liquidation.
