Estate Disbursement
 

Ok, my wife's mother has died and before she died she created a trust for all her assets. The majority of her money is invested in stocks or money markets and she was living off the capital gains each month. The will splits these stocks in half, one half for her, the other for her brother. Does anyone know if she will have to pay tax on these if they are converted to cash, or if she held them in stocks and MM until a later date and then converted them to cash would she be subject to tax at that time? Or since the ceiling for non-taxable amounts are less than 2 million, and the worth is way less than this, is she just exempt from the tax no matter what she does?

And there is a house. Worth about 250k. It is on the market. When it is sold is the money from that sale taxable?

Anyone out there with experience dealing with assets from an estate?

I deal with estates and planning all the time. Please consider very carefully what I say next. Spend the few bucks to have a qualified tax or estate professional walk you through it, the money you will spend with be worth the piece of mind in knowing it was done right.

That being said, stocks, bonds, and mutual funds have a step up on the date of death meaning that the value of the security on DoD is beneficiary's cost basis.

MiL paid $5 for XYZ, value on DoD was $20. If the beneficiary takes XYZ stock then chooses to sell and the price is $22 - the beneficiary is only responsible for capital gains on $2.

But if XYZ was sold for the same price inside the estate before disbursement the estate would be responsible for capital gains tax on $17.

If MiL's total net worth is under the death tax floor then there is not estate tax to consider.

Depending on how the trust is structured and who the successor trustee is will determine whether or not items can be sold inside the estate or if they must be distributed first. State laws are different on that issue as well. Check with a tax pro before you proceed, especially in regards to the house.

As always, I don't know you, your financial standing, the structure of the trust, or your applicable state laws so do not rely on my words in choosing a course of action. Always consult a professional before taking actions with financial ramifications.

Also before just adding those securities to your portfolio make sure they align with your predetermined retirement goals and risk tolerance.

Great stuff. Thanks. We are under the ceiling for the tax. All assets including the property were transfered to the trust. Good advice on getting a professional to help because I can't afford to get hit with more tax than needed and I don't want a surprise next year as I already pay heafty quarterly taxes.

So I take it that if the stocks go down and sold at a loss there is no capital gains and hence no tax?

correct- DoD establishes cost basis so if you sell for less than cost basis you realize a capital loss which you can use to offset other gains.

lookout, will you do my taxes?

From my experience its worth paying for Pro advice , they know how to make this as painless as possible ( for a small fee ) But you don't have to Mess with it .
AND if you go with some body reputable ( NOT Freds cousin BUBBA ( Him Smart Ya Know that !!!)) If there is a problem with the IRS or the State , they will back you up .
Worth the money !!!!!

I pay a professional to do my own. Would you really want to trust me to do yours?;)

....but you seem so much more trustworthy than Turbotax.... ;)

Ask the lawyer handling the estate to recommend someone... if a lawyer is handling the estate. There are a lot of state law nuances as well with estate distribution.

I just took the IL bar exam. There was a trusts question... it sucked.

hey there melidasaur, i think you've mentioned it before, but what area are you going to specialize in?

A chronic complaint/ topic of discussion in my field is the shortage of competent trust/estate planning attorneys around. the ones who are good can live purely on the referrals they receive from FA's after the year or so. just a thought.

I have an estate disbursement question too.

Specifically, does anyone have a large estate, which is in need of someone to which it can be disbursed? If so, let me know.

Jim will be along shortly to make a witty comment about cockage. hold still.