Distribution in kind of Irrevocable stock/bond asset

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  • #5519
    lite1A
    Participant

    Can a Trustee of an irrevocable Trust distribute stock and bond positions to a beneficiary? I know that tax code allows this when the Trust is dissolved per the terms of the Trust document, but my ? is regarding anything in the IRS tax code that prevents this happening each year?

    To give context, the Trust has common stock and mutual fund positions with significant long term capital gain. Beneficiary would likely continue to hold the asset for a period of time. Rather than realize the cap gain in the trust and distribute cash, distribution in kind seems preferable as even if sold immediately the beneficiary on their own 1040 form would pay cap gains tax at a lower rate.

    #7212
    Lewis-H
    Participant

    An “in-kind” distribution is a payment made in the form of securities or other property, rather than in cash. A distribution in kind may be made in several different situations, including a stock dividend, inheritance or taking securities out of a tax-deferred account.

    #7214
    lite1A
    Participant

    Thanks Lewis-H; I had already determined from a different source that distributing stock/bond position from Trust to beneficiary is not an issue; does not become a taxable event for beneficiary until such time as said position received is sold at profit/loss. In this situation B. “inherits” the cost basis of the Trust rather than a stepped up basis.

    #61192
    Envision10
    Participant

    Follow up question…

    Can u clarify what it means to “inherit the cost basis of the Trust rather than a stepped up basis.” Isn’t the cost basis the value of the stock on the date of death?

    Parents passed away and left stocks and mutual fund positions. My siblings would like the trustee to liquidate the stock and distribute the inheritance per the will. Why wouldn’t the basis be the death date?

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