Question: My mother just recently passed away, my father having passed before her. They had a living trust set up in 2018. That made it easy for her house to go to my brother and myself. But she also had some stocks which are not mentioned in the trust. My brother and I are trying to get them from her financial advisor whose firm managed them. They are dividing them 50/50 and are creating separate brokerage accounts for my brother and me. If we decide to cash them out, what are the fees and what tax we would be facing?
Response: It’s far too common for revocable, or “living,” trusts (they’re the same thing) to not entirely fulfill their purpose because some assets have not been transferred to them. For them to work, all assets, whether real estate, bank accounts, or brokerage accounts, must be retitled in the name of the trust.
We often find this to be useful for our clients not only to avoid probate and to allow for financial management in the event of incapacity, but also to get organized. Over a lifetime, people often accumulate various accounts in different banks and investment firms. The creation and funding of a trust prompts them to consolidate their savings and investments into one or two accounts, making financial management much easier as well as easing the burden on their heirs.
In your case, it’s not clear whether you and your brother have had to probate your mother’s estate in order to gain access to her brokerage account or it names you both as beneficiaries, avoiding the need for probate. Either way, it’s not unusual for investment firms to create separate accounts for each beneficiary. This way, you and your brother can decide separately how you want to manage the funds. It also makes it more likely that you will continue to hold these funds at the investment firm, which is what they would like to happen.
However, this could also contribute to the problem I mentioned earlier – the proliferation of accounts for you and your brother. It might be easier to direct the financial advisor to sell all the stock holdings and wire the proceeds to accounts you and your brother already own.
To get to your actual questions, I can’t comment on the fees since that’s up to the investment firm. But these days investment firms generally charge little or nothing for the sale of the stock.
That was different in the past.
Whether you sell the shares all at once or you and your brother do so individually on your own schedules, the sales will cause little or capital gain and thus little or no tax. This is because they received a “step up” in basis upon your mother’s death.
Let me explain. Typically, when stock or other property is sold, the capital gain is the difference between the sale proceeds and the property’s basis. The basis starts out as the purchase price. So, if you bought a share of stock for $100 and sold it for $200, you would realize $100 of taxable capital gain. But when the owner of property dies, the basis gets adjusted to its value on their date of death. This is known as a “step up” in basis or “stepped-up” basis.
So, in our example, if the share of stock had a market value of $200 on the date of your mother’s death and you sold if for $200 (or less) you would realize no capital gain and there would be no tax. If, on the other hand, by the time you sold the stock it had increased in value to $220, you would realize $20 of gain on its sale and have to pay tax on that amount.
Harry S. Margolis practices elder law, estate and special needs planning at Margolis Bloom & D’Agostino in Wellesley, Massachusetts. He is author of The Baby Boomers Guide to Trusts: Your All-Purpose Estate Planning Tool and answers consumer questions about estate planning issues at www.AskHarry.info. Please post your estate planning questions there.
www.AskHarry.info
