Executor of an estate

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tom1944
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Executor of an estate

Post by tom1944 »

What is your opinion of how best to manage the estate?

Should I liquidate the stocks to protect against any downturn

The estate will not be settled until sometime later this year. The stocks make up 50% of the financial accounts and about 30% of the entire estate

Since the date of death there is about a $20,000 capital gain

There are 4 beneficiaries with over 80% of assets left to one party
ExitStageLeft
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Re: Executor of an estate

Post by ExitStageLeft »

The decedent apparently felt the present level of stocks in the portfolio was appropriate, so I don't see a compelling reason to shift the allocation dramatically.

Without any specific instructions in the will, it seems best to follow the path that leads to a timely settlement.

Note that this is my lay perspective. I would check on estate laws in your state to verify that my notions are correct.
Gill
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Re: Executor of an estate

Post by Gill »

You, as executor, are risking personal liability by holding the decedent's stock in the estate. You need to do one of two things. You may ask the beneficiaries if they wish to take these holdings in kind in which case they should indemnify you and hold you harmless for any loss while they are held in the estate. If there is not total agreement to retain you should liquidate.

Absent that, you should liquidate the holdings immediately and eventually distribute cash. To take any other course of action exposes you to personal liability and, at the very least, disgruntled beneficiaries. Your job is not to invest but to liquidate and distribute the estate.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
dbr
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Re: Executor of an estate

Post by dbr »

Gill wrote: Sun Jan 26, 2020 10:55 am You, as executor, are risking personal liability by holding the decedent's stock in the estate. You need to do one of two things. You may ask the beneficiaries if they wish to take these holdings in kind in which case they should indemnify you and hold you harmless for any loss while they are held in the estate. If there is not total agreement to retain you should liquidate.

Absent that, you should liquidate the holdings immediately and eventually distribute cash. To take any other course of action exposes you to personal liability and, at the very least, disgruntled beneficiaries. Your job is not to invest but to liquidate and distribute the estate.
Gill
If I understand you correctly it is a strong principle in executor fiduciary responsibility that the value of the estate should be fixed as nearly as possible to value at the date of death by liquidating everything. Is there a particular philosophy that chooses this over maintaining the estate as the bequestor left it until it is actually distributed?
Gill
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Re: Executor of an estate

Post by Gill »

dbr wrote: Sun Jan 26, 2020 11:07 am
Gill wrote: Sun Jan 26, 2020 10:55 am You, as executor, are risking personal liability by holding the decedent's stock in the estate. You need to do one of two things. You may ask the beneficiaries if they wish to take these holdings in kind in which case they should indemnify you and hold you harmless for any loss while they are held in the estate. If there is not total agreement to retain you should liquidate.

Absent that, you should liquidate the holdings immediately and eventually distribute cash. To take any other course of action exposes you to personal liability and, at the very least, disgruntled beneficiaries. Your job is not to invest but to liquidate and distribute the estate.
Gill
If I understand you correctly it is a strong principle in executor fiduciary responsibility that the value of the estate should be fixed as nearly as possible to value at the date of death by liquidating everything. Is there a particular philosophy that chooses this over maintaining the estate as the bequestor left it until it is actually distributed?
The basic principle is that an executor has the duty to marshall the assets of the estate, liquidate them and distribute them according to the will. The will may have a provision holding the executor harmless for retaining original assets but, absent that, his duty is not to be investing the estate but rather turning it to liquid form until it is distributed. The executor is not a trustee.

Also, as a practical matter, he will get no credit for appreciation of the estate but will receive all the blame and possible personal liability for any loss from date of death values. Furthermore, nothing makes a beneficiary more unhappy than to tell him he is receiving $300,000 or 30% of a million dollar estate only to tell him a year or so down the road that the estate is now $800,000 and he will only be receiving $240,000. Quite simply, an executor retains original assets at his peril unless given specific authorization to do so by the will or the beneficiaries.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
dbr
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Re: Executor of an estate

Post by dbr »

Gill wrote: Sun Jan 26, 2020 11:16 am
dbr wrote: Sun Jan 26, 2020 11:07 am
Gill wrote: Sun Jan 26, 2020 10:55 am You, as executor, are risking personal liability by holding the decedent's stock in the estate. You need to do one of two things. You may ask the beneficiaries if they wish to take these holdings in kind in which case they should indemnify you and hold you harmless for any loss while they are held in the estate. If there is not total agreement to retain you should liquidate.

Absent that, you should liquidate the holdings immediately and eventually distribute cash. To take any other course of action exposes you to personal liability and, at the very least, disgruntled beneficiaries. Your job is not to invest but to liquidate and distribute the estate.
Gill
If I understand you correctly it is a strong principle in executor fiduciary responsibility that the value of the estate should be fixed as nearly as possible to value at the date of death by liquidating everything. Is there a particular philosophy that chooses this over maintaining the estate as the bequestor left it until it is actually distributed?
The basic principle is that an executor has the duty to marshall the assets of the estate, liquidate them and distribute them according to the will. The will may have a provision holding the executor harmless for retaining original assets but, absent that, his duty is not to be investing the estate but rather turning it to liquid form until it is distributed. The executor is not a trustee.

Also, as a practical matter, he will get no credit for appreciation of the estate but will receive all the blame and possible personal liability for any loss from date of death values. Furthermore, nothing makes a beneficiary more unhappy than to tell him he is receiving $300,000 or 30% of a million dollar estate only to tell him a year or so down the road that the estate is now $800,000 and he will only be receiving $240,000. Quite simply, an executor retains original assets at his peril unless given specific authorization to do so by the will or the beneficiaries.
Gill
Thanks, that makes total sense. I especially appreciate reading the distinction between an executor and a trustee. I was wondering about that as I imagined what a trustee would do with the assets.
quantAndHold
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Re: Executor of an estate

Post by quantAndHold »

As executor, you have a duty to act in the best interest of the heirs.

By selling the stocks, you’re generating taxes on the $20k of cap gains, and also “protecting” them from any future rise in prices. In the next few months, stock prices going up is just as likely as a downturn. You’re also protecting them from any dividends that the stocks will pay.

Unless the deceased’s investments were completely crazy, I would just leave things invested as they are. If it were a large estate that wasn’t going to be distributed for years, I might hire professional portfolio management. But it sounds like this isn’t that.
Yes, I’m really that pedantic.
Gill
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Re: Executor of an estate

Post by Gill »

quantAndHold wrote: Sun Jan 26, 2020 11:26 am As executor, you have a duty to act in the best interest of the heirs.

By selling the stocks, you’re generating taxes on the $20k of cap gains, and also “protecting” them from any future rise in prices. In the next few months, stock prices going up is just as likely as a downturn. You’re also protecting them from any dividends that the stocks will pay.

Unless the deceased’s investments were completely crazy, I would just leave things invested as they are. If it were a large estate that wasn’t going to be distributed for years, I might hire professional portfolio management. But it sounds like this isn’t that.
Your approach is interesting but, unfortunately, contrary to law and sound fiduciary practice with the very real risk of exposing the personal representative/executor to personal liability. The role of a PR is not to speculate with the assets of an estate. If the beneficiaries wish to put the assets at risk they can always give the executor written authorization to retain the original assets for ultimate distribution or the executor can make a partial distribution if deemed appropriate. I would urge the OP to ignore your advice entirely.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Topic Author
tom1944
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Re: Executor of an estate

Post by tom1944 »

I agree they should be liquidated

My wife is the actual executor and when went to do it last week the financial advisors said not to.

Her dad had a self directed account which he left to his wife and she left all his investments as is. She had no idea what he had but was lucky we were in a rising market

My wife had planned to sell but changed her mind after the meeting. I have great concern with this advisor because she was wrong on everything she said. She actually told my wife the real estate won’t get stepped basis so because of that when you see everything the estate taxable income will be very high,

I had to show her that all 5 questions we had the advice was wrong

This situation is very emotional for my wife so I tread carefully with my suggestions
PoppyA
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Re: Executor of an estate

Post by PoppyA »

God bless Gill
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Re: Executor of an estate

Post by retired@50 »

tom1944 wrote: Sun Jan 26, 2020 1:18 pm My wife is the actual executor and when went to do it last week the financial advisors said not to.

My wife had planned to sell but changed her mind after the meeting. I have great concern with this advisor because she was wrong on everything she said. She actually told my wife the real estate won’t get stepped basis so because of that when you see everything the estate taxable income will be very high,

I had to show her that all 5 questions we had the advice was wrong

This situation is very emotional for my wife so I tread carefully with my suggestions
Once again, a financial adviser to the rescue, of her own self-interests. I agree that you're in a tough spot, so being careful is warranted. Some folks have a hard time believing that anyone (like a financial adviser) would be so calculating after the death of a beloved family member.

It sounds like it's time to break away from this adviser.

Regards,
This is one person's opinion. Nothing more.
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Kenkat
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Re: Executor of an estate

Post by Kenkat »

If the estate liquidates the stock investments, is there any step up of the basis? Or is that lost because the estate is in effect just an extension of the deceased?
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tom1944
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Re: Executor of an estate

Post by tom1944 »

The stepped up basis applies
privateer79
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Re: Executor of an estate

Post by privateer79 »

Kenkat wrote: Sun Jan 26, 2020 1:38 pm If the estate liquidates the stock investments, is there any step up of the basis? Or is that lost because the estate is in effect just an extension of the deceased?
I believe you get cost basis stepped up to "value at date of death".... (I believe that's how it worked when I PR'd my fathers estate (for my sole benefit so the liability issue wasn't a concern))

That may raise another issue with this approach, if you have a gain in the estate, you're paying the estate income tax rate rather than the individuals (which I believe tends to be pretty punitive to prevent people hiding assets in estate for a long time to avoid overall higher taxes).... i.e. if the stock goes up, you probably would have been better to have distributed it in-kind near date of death, and have the beneficiary take the gain/dividends, rather than file the gain on the estate's income tax return in a higher tax bracket.
Jablean
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Re: Executor of an estate

Post by Jablean »

The estate is a person. When inheritors get their portion they get it at whatever basis that day is. The estate would pay income tax on any gains before the distribution date.

If instead of distribution through a will it is a TOD account then the inheritor is responsible for cap gains etc from the date of death.
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tom1944
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Re: Executor of an estate

Post by tom1944 »

privateer79 wrote: Sun Jan 26, 2020 2:05 pm
Kenkat wrote: Sun Jan 26, 2020 1:38 pm If the estate liquidates the stock investments, is there any step up of the basis? Or is that lost because the estate is in effect just an extension of the deceased?
I believe you get cost basis stepped up to "value at date of death".... (I believe that's how it worked when I PR'd my fathers estate (for my sole benefit so the liability issue wasn't a concern))

That may raise another issue with this approach, if you have a gain in the estate, you're paying the estate income tax rate rather than the individuals (which I believe tends to be pretty punitive to prevent people hiding assets in estate for a long time to avoid overall higher taxes).... i.e. if the stock goes up, you probably would have been better to have distributed it in-kind near date of death, and have the beneficiary take the gain/dividends, rather than file the gain on the estate's income tax return in a higher tax bracket.
A CPA told me capital gains are taxed equally on an estate return as they are on individual returns. Dividends are taxed higher

Normally I would do the tax return but to avoid issues we are going to have a CPA do it
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Re: Executor of an estate

Post by Gill »

Jablean wrote: Sun Jan 26, 2020 2:16 pm The estate is a person. When inheritors get their portion they get it at whatever basis that day is. The estate would pay income tax on any gains before the distribution date.

If instead of distribution through a will it is a TOD account then the inheritor is responsible for cap gains etc from the date of death.
No, that's incorrect. Date of death determines basis for all purposes except for the very rare and inapplicable alternate valuation possibility. Basis for beneficiaries and for the estate is date of death value. I've seen this erroneous statement posted here before.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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tom1944
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Re: Executor of an estate

Post by tom1944 »

Gill wrote: Sun Jan 26, 2020 2:52 pm
Jablean wrote: Sun Jan 26, 2020 2:16 pm The estate is a person. When inheritors get their portion they get it at whatever basis that day is. The estate would pay income tax on any gains before the distribution date.

If instead of distribution through a will it is a TOD account then the inheritor is responsible for cap gains etc from the date of death.
No, that's incorrect. Date of death determines basis for all purposes except for the very rare and inapplicable alternate valuation possibility. Basis for beneficiaries and for the estate is date of death value. I've seen this erroneous statement posted here before.
Gill
Gill thank you. Your replies have been extremely helpful
Gill
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Re: Executor of an estate

Post by Gill »

Thanks, Tom. I've always been adamant about this point in the administration of an estate and like to emphasize the risk an executor takes in just sitting on the original assets of an estate. This is particularly true in cases where there is a large concentration in one stock. I saw an executor subjected to significant personal liability where it didn't liquidate a large concentration, assuming the decedent's family wished to have the asset retained. I've liquidated estates on the date of death for this very reason.

Aside from all the liability problems, there is always the practical aspects that the holdings are not easily divisible or are not suited for the beneficiaries.Sitting on the original assets by the executor will win him no accolades if the estate increases in value but will subject him to serious and deserved criticism as well as personal liability if the estate declines in value during the administration. Unless there are compelling reasons to do otherwise, it is always best to liquidate ASAP and either make a partial distribution or hold the proceeds in safe investments such as Treasuries or CD's. Nothing makes a beneficiary happier than a partial distribution soon after death if that is possible.

Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Rudedog
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Re: Executor of an estate

Post by Rudedog »

Any liabilities or claims that the estate owes ? Any estate tax due to the IRS? If the answer to both is no, I'd settle the estate and distribute most of the funds to the beneficiaries as soon as possible. Don't forget, the estate may have a tax liability regarding the deceased's final individual income tax return that you'll have to keep funds in the estate to pay. You may want to get a good CPA with current estate experience in your state.
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tom1944
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Re: Executor of an estate

Post by tom1944 »

Rudedog wrote: Sun Jan 26, 2020 9:26 pm Any liabilities or claims that the estate owes ? Any estate tax due to the IRS? If the answer to both is no, I'd settle the estate and distribute most of the funds to the beneficiaries as soon as possible. Don't forget, the estate may have a tax liability regarding the deceased's final individual income tax return that you'll have to keep funds in the estate to pay. You may want to get a good CPA with current estate experience in your state.
We have already been in contact with a CPA and I am fortunate to know both State and IRS officials that work in the estate area

As I mentioned earlier this is very emotional for my wife so it is going slower than it should

I have to carefully move her along so when the advisor gives bad information that really has an impact
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Re: Executor of an estate

Post by cadreamer2015 »

I'd like to thank Gill for his clear explanation of the duties of the executor in this regard. If I may slightly expand the scope of the OP's question, is the advice (and potential for liability) any different if we are talking about a trust and the duties of a successor trustee, assuming that the assets of the trust will be distributed to beneficiaries as soon as the debts of the grantor have been settled and everything else wrapped up?
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quantAndHold
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Re: Executor of an estate

Post by quantAndHold »

Gill wrote: Sun Jan 26, 2020 11:30 am
quantAndHold wrote: Sun Jan 26, 2020 11:26 am As executor, you have a duty to act in the best interest of the heirs.

By selling the stocks, you’re generating taxes on the $20k of cap gains, and also “protecting” them from any future rise in prices. In the next few months, stock prices going up is just as likely as a downturn. You’re also protecting them from any dividends that the stocks will pay.

Unless the deceased’s investments were completely crazy, I would just leave things invested as they are. If it were a large estate that wasn’t going to be distributed for years, I might hire professional portfolio management. But it sounds like this isn’t that.
Your approach is interesting but, unfortunately, contrary to law and sound fiduciary practice with the very real risk of exposing the personal representative/executor to personal liability. The role of a PR is not to speculate with the assets of an estate. If the beneficiaries wish to put the assets at risk they can always give the executor written authorization to retain the original assets for ultimate distribution or the executor can make a partial distribution if deemed appropriate. I would urge the OP to ignore your advice entirely.
Gill
Ummm. Sure. Whatever. My understanding when I actually had to do this exact thing was that my duty was to be honest and make the best decisions for the heirs I could with what information I had. My lawyer told me that it was up to me to manage the assets in the best interest of the heirs, and that holding the existing stock portfolio and distributing it in-kind was perfectly reasonable and defensible. Which is what I did. The sky did not fall in, despite one of the investments losing money during that period.

The main thing I would be concerned about with OP’s situation is the tax bill that selling the stock is going to generate. It may not be in the heirs’ interest to sell the stock and generate the tax hit. I would at least ask the 80% heir if that’s what they want before I sold anything.
Yes, I’m really that pedantic.
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Re: Executor of an estate

Post by Gill »

cadreamer2015 wrote: Sun Jan 26, 2020 10:25 pm I'd like to thank Gill for his clear explanation of the duties of the executor in this regard. If I may slightly expand the scope of the OP's question, is the advice (and potential for liability) any different if we are talking about a trust and the duties of a successor trustee, assuming that the assets of the trust will be distributed to beneficiaries as soon as the debts of the grantor have been settled and everything else wrapped up?
It is no different for a successor trustee of a revocable trust being distributed outright. The trustee is acting in the role of a personal representative and has the same responsibilities.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Stinky
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Re: Executor of an estate

Post by Stinky »

Gill wrote: Sun Jan 26, 2020 5:43 pm Thanks, Tom. I've always been adamant about this point in the administration of an estate and like to emphasize the risk an executor takes in just sitting on the original assets of an estate. This is particularly true in cases where there is a large concentration in one stock. I saw an executor subjected to significant personal liability where it didn't liquidate a large concentration, assuming the decedent's family wished to have the asset retained. I've liquidated estates on the date of death for this very reason.

Aside from all the liability problems, there is always the practical aspects that the holdings are not easily divisible or are not suited for the beneficiaries.Sitting on the original assets by the executor will win him no accolades if the estate increases in value but will subject him to serious and deserved criticism as well as personal liability if the estate declines in value during the administration. Unless there are compelling reasons to do otherwise, it is always best to liquidate ASAP and either make a partial distribution or hold the proceeds in safe investments such as Treasuries or CD's. Nothing makes a beneficiary happier than a partial distribution soon after death if that is possible.

Gill
Such solid advice!

Thanks for your input to this Forum.
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JoeRetire
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Re: Executor of an estate

Post by JoeRetire »

tom1944 wrote: Sun Jan 26, 2020 10:14 am What is your opinion of how best to manage the estate?

There are 4 beneficiaries with over 80% of assets left to one party
What do the beneficiaries want?
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Billionaire
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Re: Executor of an estate

Post by Billionaire »

Gill wrote: Mon Jan 27, 2020 7:03 am
cadreamer2015 wrote: Sun Jan 26, 2020 10:25 pm I'd like to thank Gill for his clear explanation of the duties of the executor in this regard. If I may slightly expand the scope of the OP's question, is the advice (and potential for liability) any different if we are talking about a trust and the duties of a successor trustee, assuming that the assets of the trust will be distributed to beneficiaries as soon as the debts of the grantor have been settled and everything else wrapped up?
It is no different for a successor trustee of a revocable trust being distributed outright. The trustee is acting in the role of a personal representative and has the same responsibilities.
Gill
Thanks for answering that question, as I was about to ask something similar. Here's why. My mother died in December 2019 and I'm the executor. The vast majority of her assets (14 stock positions) were held in a trust. Within four weeks, all the stocks were divided among her beneficiaries and transferred to each individuals brokerage account. Sounds like I should have sold the stocks when mom died and transferred the cash to the beneficiaries. After spending a small fortune on nursing home care, not wanting to hire an attorney for any advice, not really liking my mother's stockbroker and not wanting to put a large amount of cash in one of the beneficiaries pockets, I opted for transferring the stocks. In less than four weeks they appreciated $10,000.00.

Side note: My mother was dealing with this stockbroker for a couple of decades. He owned a small operation. During the holidays, it seemed like his office was a ghost town. I kept pestering them to get the deal done.

It would be interesting to know the percentage of executors who don't follow Gill's advice. I've seen much larger estates than my mom's that transferred stock and bond positions months and months after the date of death.
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Re: Executor of an estate

Post by dbr »

There might be a difference between distributing assets in a trust that terminates with someone's death and distributing assets in the estate that was created by someone's death. That also has to do with the obligations of a trustee as to how to terminate a trust and an executor to distribute an estate. Note a will might cause a trust to be created but I don't think a will can affect a trust that already exists.

I imagine Gill might set us straight on some of this.

To answer your question I have received securities upon the termination of a trust at someone's death. I have also inherited securities at someone's death with no trust involved. I have seen wills that direct the establishment of a trust for minors upon someone's death where the assets are not yet in a trust.
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dm200
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Re: Executor of an estate

Post by dm200 »

tom1944 wrote: Sun Jan 26, 2020 10:14 am What is your opinion of how best to manage the estate?
Should I liquidate the stocks to protect against any downturn
The estate will not be settled until sometime later this year. The stocks make up 50% of the financial accounts and about 30% of the entire estate
Since the date of death there is about a $20,000 capital gain
There are 4 beneficiaries with over 80% of assets left to one party
I would take a very cautious approach - and liquidate most of the stocks.

The exception might be if you communicate regularly and well with the beneficiaries and the beneficiaries would prefer a different allocation.
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Re: Executor of an estate

Post by Wiggums »

Billionaire wrote: Mon Jan 27, 2020 8:56 am Thanks for answering that question, as I was about to ask something similar. Here's why. My mother died in December 2019 and I'm the executor. The vast majority of her assets (14 stock positions) were held in a trust. Within four weeks, all the stocks were divided among her beneficiaries and transferred to each individuals brokerage account. Sounds like I should have sold the stocks when mom died and transferred the cash to the beneficiaries. After spending a small fortune on nursing home care, not wanting to hire an attorney for any advice, not really liking my mother's stockbroker and not wanting to put a large amount of cash in one of the beneficiaries pockets, I opted for transferring the stocks. In less than four weeks they appreciated $10,000.00.
Your job as executor is to “preserve” assets, not “grow” them. This can be an important principle in determining if you’ll sell or hold stocks. In many cases, the estate will be closed and assets will be distributed within 12 to 18 months. Given date-of-death valuation, a strong argument can be made that the most conservative approach is to sell stocks and minimize the risk of a market correction. Again, whether this approach is right for you is dependent on many factors, including the financial situation of the beneficiaries. Beneficiaries, who will typically have much longer investment time horizons can then purchase stocks that are a fit for their portfolios, whether those assets are in general accounts or Inherited IRAs.
gd
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Re: Executor of an estate

Post by gd »

This thread made me realize I have fundamental gaps in my understanding of estates.

Do estates pay tax on stock gains, paper or realized, up to time of death?

If so, what rate? If not, the gains are just lost to the tax system?

If estates don't pay tax on gains up to death, do they pay capital gains tax on stock gains from time of death until whenever the executor sells the stock? If not, seems like this could be used to game tax by drawing out estate settlement, then selling appreciated-since-death stock to distribute untaxed cgs the beneficiary would otherwise pay tax on. Since executors are often personally involved, seems relevant.

Every will and trust document I've ever seen (not that many), has explicit hold-harmless wording. That's worthless in practice?
student
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Re: Executor of an estate

Post by student »

gd wrote: Mon Jan 27, 2020 9:40 am This thread made me realize I have fundamental gaps in my understanding of estates.

Do estates pay tax on stock gains, paper or realized, up to time of death?

If so, what rate? If not, the gains are just lost to the tax system?

If estates don't pay tax on gains up to death, do they pay capital gains tax on stock gains from time of death until whenever the executor sells the stock? If not, seems like this could be used to game tax by drawing out estate settlement, then selling appreciated-since-death stock to distribute untaxed cgs the beneficiary would otherwise pay tax on. Since executors are often personally involved, seems relevant.

Every will and trust document I've ever seen (not that many), has explicit hold-harmless wording. That's worthless in practice?
Here is an article that you may find helpful. https://www.investopedia.com/terms/s/stepupinbasis.asp
adamthesmythe
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Re: Executor of an estate

Post by adamthesmythe »

(While having no experience with this sort of thing) I would agree with those who advise selling to cash or near-cash and preserving assets.

However- it seems to me if the executor had any doubt whatever- it would be appropriate to seek a written legal opinion, to be paid for by the estate.
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Re: Executor of an estate

Post by aristotelian »

Are you sure the assets need to go through probate rather than TOD?
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Re: Executor of an estate

Post by dm200 »

adamthesmythe wrote: Mon Jan 27, 2020 11:45 am (While having no experience with this sort of thing) I would agree with those who advise selling to cash or near-cash and preserving assets.
However- it seems to me if the executor had any doubt whatever- it would be appropriate to seek a written legal opinion, to be paid for by the estate.
Yes - this might be worthwhile - depending on all the facts and circumstances.

From my experience being an heir of an estate (my brother was the executor), isn't it quite common that funds from the estate are often distributed to heirs in multiple distributions?
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Re: Executor of an estate

Post by 8foot7 »

We were told to immediately liquidate my MIL's brokerage account to protect against downside risk. The lawyer explained to my wife, the executor, that her job was the preserve the contents of the estate for distribution. Investing in risky assets did not align with that responsibility. Sounds like our lawyer agreed with Gill.
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dm200
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Re: Executor of an estate

Post by dm200 »

8foot7 wrote: Mon Jan 27, 2020 12:32 pm We were told to immediately liquidate my MIL's brokerage account to protect against downside risk. The lawyer explained to my wife, the executor, that her job was the preserve the contents of the estate for distribution. Investing in risky assets did not align with that responsibility. Sounds like our lawyer agreed with Gill.
Yes - certainly my understanding.
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Re: Executor of an estate

Post by Gill »

dbr wrote: Mon Jan 27, 2020 9:11 am There might be a difference between distributing assets in a trust that terminates with someone's death and distributing assets in the estate that was created by someone's death. That also has to do with the obligations of a trustee as to how to terminate a trust and an executor to distribute an estate. Note a will might cause a trust to be created but I don't think a will can affect a trust that already exists.

I imagine Gill might set us straight on some of this.

To answer your question I have received securities upon the termination of a trust at someone's death. I have also inherited securities at someone's death with no trust involved. I have seen wills that direct the establishment of a trust for minors upon someone's death where the assets are not yet in a trust.
Quite likely the big difference is that with distribution of a trust there is often no stepup in basis and large gains might be involved. Nevertheless, the trustee should still consult with the remainder beneficiaries and determine whether they wish to have the securities liquidated or held for distribution to them. It would still be prudent to obtain their written consent for retention with an acknowledgement that the trustee is retaining the securities at their direction and at their risk.
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Re: Executor of an estate

Post by cheese_breath »

tom1944 wrote: Sun Jan 26, 2020 1:18 pm ... My wife is the actual executor and when went to do it last week the financial advisors said not to.
I haven't read all the posts in the thread so I don't know if this has already been mentioned, but this is not the type of question you should be asking a financial advisor. It's not their area of expertise. You should be asking a probate attorney. Would you ask a rare books curator if a decedent's book collection should be kept whole or the books sold off individually?

I see two problems here. (1) You asked the wrong person. (2) The FA answered the question instead of deferring to someone with the necessary qualifications.

edit: Fortunately you came here and the right person (Gill) saw your post.
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dm200
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Re: Executor of an estate

Post by dm200 »

cheese_breath wrote: Mon Jan 27, 2020 4:06 pm
tom1944 wrote: Sun Jan 26, 2020 1:18 pm ... My wife is the actual executor and when went to do it last week the financial advisors said not to.
I haven't read all the posts in the thread so I don't know if this has already been mentioned, but this is not the type of question you should be asking a financial advisor. It's not their area of expertise. You should be asking a probate attorney. Would you ask a rare books curator if a decedent's book collection should be kept whole or the books sold off individually?
I see two problems here. (1) You asked the wrong person. (2) The FA answered the question instead of deferring to someone with the necessary qualifications.
edit: Fortunately you came here and the right person (Gill) saw your post.
No attorney here - but the executor has a legal responsibility to handle the estate -- NOT the financial adviser!
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Re: Executor of an estate

Post by gd »

cheese_breath wrote: Mon Jan 27, 2020 4:06 pm (snip)
I see two problems here. (1) You asked the wrong person. (2) The FA answered the question instead of deferring to someone with the necessary qualifications.

edit: Fortunately you came here and the right person (Gill) saw your post.
This has been a very useful thread for me-- never had anyone suggest executors and trustees had significant personal liability risks, and I'm going to keep that in mind-- but in the end, we're all anonymous internet posters, even Gill.

Basis of inherited assets seems like something a FA should be able to give basic information about. I'd part company with that one.
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Re: Executor of an estate

Post by tom1944 »

cheese_breath wrote: Mon Jan 27, 2020 4:06 pm
tom1944 wrote: Sun Jan 26, 2020 1:18 pm ... My wife is the actual executor and when went to do it last week the financial advisors said not to.
I haven't read all the posts in the thread so I don't know if this has already been mentioned, but this is not the type of question you should be asking a financial advisor. It's not their area of expertise. You should be asking a probate attorney. Would you ask a rare books curator if a decedent's book collection should be kept whole or the books sold off individually?

I see two problems here. (1) You asked the wrong person. (2) The FA answered the question instead of deferring to someone with the necessary qualifications.

edit: Fortunately you came here and the right person (Gill) saw your post.
I did not ask her. I went with my wife with the intention of supporting her. When it was mentioned to liquidate the stock the advisor went on about why my wife should not do that so my wife got nervous and decided not to do anything

I nicely pointed out to the advisor that she was incorrect on several questions but did not want to fight with her

My wife and I left and I told my wife the advisor recommendation was bad

My wife has agreed to begin selling the stock
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Re: Executor of an estate

Post by donall »

I was an executor for an estate in 2017. I asked the beneficiaries if they wanted the securities, bonds, brokerage CDs, and funds sold or wanted transfers. They agreed on the selling of a particular stock and two CDs, transfer of the rest in kind. This happened fairly quickly and was the right decision as the interest rates were excellent in all but two CDs. Brokerage CDs have a death put, so the original amount could be returned if the value was less. I would not have transferred in kind if there was disagreement.
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Re: Executor of an estate

Post by GreenGrowTheDollars »

quantAndHold wrote: Sun Jan 26, 2020 10:44 pm The main thing I would be concerned about with OP’s situation is the tax bill that selling the stock is going to generate. It may not be in the heirs’ interest to sell the stock and generate the tax hit. I would at least ask the 80% heir if that’s what they want before I sold anything.
I thought that with the basis step-up that there would likely not be significant capital gains to recognize?
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Re: Executor of an estate

Post by Gill »

GreenGrowTheDollars wrote: Mon Jan 27, 2020 11:55 pm
quantAndHold wrote: Sun Jan 26, 2020 10:44 pm The main thing I would be concerned about with OP’s situation is the tax bill that selling the stock is going to generate. It may not be in the heirs’ interest to sell the stock and generate the tax hit. I would at least ask the 80% heir if that’s what they want before I sold anything.
I thought that with the basis step-up that there would likely not be significant capital gains to recognize?
The person who posted this was referring to the $20,000 gain since date of death. This seemed rather small in relation to the size of the estate and also could likely be partially or entirely offset by estate administration expenses or else passed out and split among the beneficiaries. The tax on this small gain seems insignificant in relation to the risk of retaining stock in the estate and suffering a market loss.
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Re: Executor of an estate

Post by bsteiner »

Gill wrote: Mon Jan 27, 2020 12:51 pm ... with distribution of a trust there is often no stepup in basis and large gains might be involved. Nevertheless, the trustee should still consult with the remainder beneficiaries and determine whether they wish to have the securities liquidated or held for distribution to them. It would still be prudent to obtain their written consent for retention with an acknowledgement that the trustee is retaining the securities at their direction and at their risk.
I had that very case many years ago. The credit shelter trust under the husband's Will was poorly drafted and it wasn't clear whether the wife's power to withdraw was limited to health, maintenance and support. If it was so limited, the trust wouldn't be included in the wife's estate, and the assets wouldn't get a basis step-up. If it wasn't so limited, the trust would be included in the wife's estate, and the assets would get a basis step-up.

Our client was one of two personal representatives and one of two trustees, though his co-fiduciary was different in each case.

We concluded it was a law school exam question, and that he should take the position on the estate tax return that the trust was not included in the estate. Since the return asks for copies of any trusts in which the decedent was a trustee or beneficiary, he had to disclose the trust and attach a copy of it. IRS estate tax attorneys have settlement authority for valuation issues but not for questions of law, so I said I thought that if the return were audited the IRS estate tax attorney would say that the trust should be included, and that we would take the case to the IRS Appeals Office (which has the authority to settle based on the hazards of litigation), where we would make our case but expect to settle around 50/50. As luck would have it, the return was audited but the IRS estate tax attorney didn't spot the issue.

Our client wanted to know whether the trust would be included in the wife's estate because the trust held a concentrated position in a highly appreciated stock. He said if he knew the trust would be included and there was a basis step-up he would sell the stock, and if he knew the trust would not be included he would discuss the issue with the remainder beneficiaries. We also discussed hedging with put options. I think he ended up distributing the stock in kind so each remainder beneficiary could make his/her own decision.
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Re: Executor of an estate

Post by Gill »

bsteiner wrote: Tue Jan 28, 2020 11:08 am
Gill wrote: Mon Jan 27, 2020 12:51 pm ... with distribution of a trust there is often no stepup in basis and large gains might be involved. Nevertheless, the trustee should still consult with the remainder beneficiaries and determine whether they wish to have the securities liquidated or held for distribution to them. It would still be prudent to obtain their written consent for retention with an acknowledgement that the trustee is retaining the securities at their direction and at their risk.
I had that very case many years ago. The credit shelter trust under the husband's Will was poorly drafted and it wasn't clear whether the wife's power to withdraw was limited to health, maintenance and support. If it was so limited, the trust wouldn't be included in the wife's estate, and the assets wouldn't get a basis step-up. If it wasn't so limited, the trust would be included in the wife's estate, and the assets would get a basis step-up.

Our client was one of two personal representatives and one of two trustees, though his co-fiduciary was different in each case.

We concluded it was a law school exam question, and that he should take the position on the estate tax return that the trust was not included in the estate. Since the return asks for copies of any trusts in which the decedent was a trustee or beneficiary, he had to disclose the trust and attach a copy of it. IRS estate tax attorneys have settlement authority for valuation issues but not for questions of law, so I said I thought that if the return were audited the IRS estate tax attorney would say that the trust should be included, and that we would take the case to the IRS Appeals Office (which has the authority to settle based on the hazards of litigation), where we would make our case but expect to settle around 50/50. As luck would have it, the return was audited but the IRS estate tax attorney didn't spot the issue.

Our client wanted to know whether the trust would be included in the wife's estate because the trust held a concentrated position in a highly appreciated stock. He said if he knew the trust would be included and there was a basis step-up he would sell the stock, and if he knew the trust would not be included he would discuss the issue with the remainder beneficiaries. We also discussed hedging with put options. I think he ended up distributing the stock in kind so each remainder beneficiary could make his/her own decision.
Interesting case, Bruce. I assume it was more favorable to exclude the trust from the gross estate and not get the stepup. You had a real dilemma with respect to selling or retaining the stock.
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Re: Executor of an estate

Post by PatrickA5 »

I'm a little confused as to when an Estate Tax return needs to be filed.

I know that the decedent has a final Income tax return for income up to the date of death. But, even simple estates that don't go through probate have a period of time between the date of death and when the heirs eventually get the distribution. Is the income during that time the estates income or the heirs income?
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Re: Executor of an estate

Post by Gill »

PatrickA5 wrote: Tue Jan 28, 2020 12:20 pm I'm a little confused as to when an Estate Tax return needs to be filed.

I know that the decedent has a final Income tax return for income up to the date of death. But, even simple estates that don't go through probate have a period of time between the date of death and when the heirs eventually get the distribution. Is the income during that time the estates income or the heirs income?
I believe you mean an estate income tax return, i.e., a form 1041. Yes, there is usually a period from date of death during which the estate earns income. If that exceeds $600 a return is required. An estate can elect a fiscal year for any period up to a year after date of death. Although the estate is required to file a return, distributions to beneficiaries often cause the income to be taxed to them. Also, income in the estate can often be offset by deductions of administrative expenses such as attorney fees.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Re: Executor of an estate

Post by PatrickA5 »

Gill wrote: Tue Jan 28, 2020 12:30 pm
PatrickA5 wrote: Tue Jan 28, 2020 12:20 pm I'm a little confused as to when an Estate Tax return needs to be filed.

I know that the decedent has a final Income tax return for income up to the date of death. But, even simple estates that don't go through probate have a period of time between the date of death and when the heirs eventually get the distribution. Is the income during that time the estates income or the heirs income?
I believe you mean an estate income tax return, i.e., a form 1041. Yes, there is usually a period from date of death during which the estate earns income. If that exceeds $600 a return is required. An estate can elect a fiscal year for any period up to a year after date of death. Although the estate is required to file a return, distributions to beneficiaries often cause the income to be taxed to them. Also, income in the estate can often be offset by deductions of administrative expenses such as attorney fees.
Gill
Thanks Gill. Can I assume if the account is TOD, that there wouldn't be any Estate income since the account transfers at death - regardless of when the beneficiary actually gets the money?
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