Estate Selling Stock


L

Larry Israel

Is there any tax difference (assume that the estate is too
small for inheritance tax) between willing an appreciated
stock to someone who will then sell it, or having the estate
sell the stock and give the money to that person?
 
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S

Stuart A. Bronstein

Is there any tax difference (assume that the estate is too
small for inheritance tax) between willing an appreciated
stock to someone who will then sell it, or having the estate
sell the stock and give the money to that person?
The estate may be in a higher tax bracket than the
individuals. On the other hand I have been informed that if
the estate sells appreciated assets it can pass the gain
directly to the heirs rather than pay tax on it itself.

Stu
 
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L

Larry Israel

I was not clear in my question. I meant to ask if the
step-up of the basis to the date of death of the original
owner that would happen if the stock were given to the heir,
would also apply if the estate sold the stock and gave the
proceeds to the heir. Were this true there would be no
capital gains tax payable by the estate either.
 
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H

Herb Smith

Larry said:
I was not clear in my question. I meant to ask if the
step-up of the basis to the date of death of the original
owner that would happen if the stock were given to the heir,
would also apply if the estate sold the stock and gave the
proceeds to the heir. Were this true there would be no
capital gains tax payable by the estate either.
The DOD becomes the cost basis for the stock, whether sold
by the estate or the beneficiary. Any further appreciation
between the DOD and the sale date is taxed as longterm
capital gains. There may be a deductible loss.

If the estate makes the sale, the capital gain is passed to
the beneficiary on K-1. That gain is shown on his/her tax
return and taxed accordingly.
 
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S

Stuart A. Bronstein

I was not clear in my question. I meant to ask if the
step-up of the basis to the date of death of the original
owner that would happen if the stock were given to the heir,
would also apply if the estate sold the stock and gave the
proceeds to the heir. Were this true there would be no
capital gains tax payable by the estate either.
Yes, the estate also gets the stepped up basis in
appreciated assets.

Stu
 
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E

ed

The step-up in basis applies reagardeless of who sells or
inherits the stock. The step-up basis is their basis.
Therefor, there will be very little gains.

-The tax to the trust if they don't distribute the gain will
probably be a little less than the stock to an individual,
but it could be higher.. If this is the last year of the
estate or trust it doesn't make any difffence because the
gain is passed on to the beneficiaires.

ed
 
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T

tobe

Herb Smith said:
If the estate makes the sale, the capital gain is passed to
the beneficiary on K-1. That gain is shown on his/her tax
return and taxed accordingly.
I don't understand this part, and have gotten advice to the
contrary, including from this forum!

If what you say is true, why is there a place on the Federal
Estate income tax form to calculate capital gain and the tax
due on that gain from the estate? The same is true on at
least some State estate income tax forms.

Doesn't it depend upon how the individual States laws regard
the actual ownership of the estate assets upon death? In
other words, I have read that some states indicate that
ownership of estate assets transfers to the beneficiaries
upon death, even if probate is pending and actual physical
transfer has not yet occurred, while other states do not
consider the assets to be owned by the beneficiaries until
the physical transfer of assets has occurred.
 
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T

tobe

ed said:
If this is the last year of the
estate or trust it doesn't make any difffence because the
gain is passed on to the beneficiaires.
Can you cite a source for this in the tax regulations? I
have been unable to find a definitive answer to this
question, and have gotten conflicting advice from tax
experts.
 
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D

David Woods, EA, ChFC, CLU

Stuart A. Bronstein said:
(e-mail address removed) (Larry Israel) wrote:
The estate may be in a higher tax bracket than the
individuals. On the other hand I have been informed that if
the estate sells appreciated assets it can pass the gain
directly to the heirs rather than pay tax on it itself.
Neither of you are right. If you will something to someone,
it receives a basis adjustment when you die. As for the
estate selling appreciated assets, typically estates aren't
open long enough for any significant appreciation to occur
from date of death.
 
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S

Stuart A. Bronstein

I don't understand this part, and have gotten advice to the
contrary, including from this forum!

If what you say is true, why is there a place on the Federal
Estate income tax form to calculate capital gain and the tax
due on that gain from the estate? The same is true on at
least some State estate income tax forms.
I recently had a case come up in which four kids inherited a
house from their mother. The one who took on the job as
administrator was from out of town, so lived in the house
pending probate. By the time the house got sold, it was
more than two years later, and probate had not terminated.

In the end it was determined that the estate could claim the
capital gain and pay the tax. But it could also issue
1099's to the heirs and pass the tax liability on to them.
It made more sense for the heirs to pay the tax, since one
qualified for the $250,000 exemption and two others had no
other taxable income so their brackets were lower than that
of the trust.

Stu
 
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S

Stuart A. Bronstein

Can you cite a source for this in the tax regulations?
I have been unable to find a definitive answer to this
question, and have gotten conflicting advice from tax
experts.
Then the best thing to do is to pay someone to actually take
the time to figure out exactly what you need to know, rather
than guesses based on similar but not identical situations.

Stu
 
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S

Stuart A. Bronstein

Neither of you are right. If you will something to someone,
it receives a basis adjustment when you die. As for the
estate selling appreciated assets, typically estates aren't
open long enough for any significant appreciation to occur
from date of death.
Exactly how am I wrong? Of course the basis is adjusted
when someone dies, irrespective of who sells it, or when
it's sold. That wasn't the point.

First of all, at least in California estates are open for an
average of one to two years. In one estate I dealt with
recently the final act before distribution of estate assets
was selling the house. Due to the passage of time the sale
price was $225,000 more than the value at the date of death.

In my case if the estate had paid the tax it would have been
in the 39% bracket. Based on the recommendation of the
person doing the taxes, by passing the tax on to the
beneficiaries three of them had little or no tax and the
fourth was in the 31% bracket.

Stu
 
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E

ed

Stu: There is no way an estate or trust would be taxed at
over 15% for a long term capital gain let alone 39% when the
top estate tax bracked is only 35%. Distributing to the
beneficaries might be advantageous if they are in less than
the 15% bracket so their LTCG would be 5%, but no way would
they pay more than 15%, even if in the 31% bracket.

ed
 
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D

David Woods

Exactly how am I wrong? Of course the basis is adjusted
when someone dies, irrespective of who sells it, or when
it's sold. That wasn't the point.

First of all, at least in California estates are open for an
average of one to two years. In one estate I dealt with
recently the final act before distribution of estate assets
was selling the house. Due to the passage of time the sale
price was $225,000 more than the value at the date of death.

In my case if the estate had paid the tax it would have been
in the 39% bracket. Based on the recommendation of the
person doing the taxes, by passing the tax on to the
beneficiaries three of them had little or no tax and the
fourth was in the 31% bracket.
Stu, you're wrong because if the asset appreciates after
death, it's a long term capital gain regardless of when it
is sold after death or if its sold by the estate or the
beneficiary. That means the tax rate is 15% regardless if
its taxed to the estate or the beneficiary.
 
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S

Stuart A. Bronstein

ed said:
Stu: There is no way an estate or trust would be taxed at
over 15% for a long term capital gain let alone 39% when the
top estate tax bracked is only 35%. Distributing to the
beneficaries might be advantageous if they are in less than
the 15% bracket so their LTCG would be 5%, but no way would
they pay more than 15%, even if in the 31% bracket.
Whoops! Sorry, you're right. I forgot about the capital gain.

I didn't mean to imply that it's always better to have
beneficiaries be allocated estate income, just that there
are times when it makes sense.

Stu
 
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