Outside the Box: My mother-in-law just died, should stock in the estate be liquidated or distributed to beneficiaries?

by | May 13, 2023 | Stock Market

Dear Harry, My wife’s mother passed away a few months ago. She had a brokerage account in her name with her husband (stepfather) listed as the primary beneficiary and my wife and her brothers as secondary beneficiaries. The stepfather plans to distribute the assets equally to my wife and her brothers as their mother had requested. The stepfather told my wife the broker was going to sell the stock, which actually has gone up in value since her mother’s passing so, even with the step-up, there will be capital gains when the stock is sold. How should the assets best be distributed?

Dear reader, This is a judgment call. It’s certainly easier to liquidate the stock and distribute the resulting cash. But in the situation you describe, this will result in some realized capital gains. As you rightfully say, the capital gains will only be the difference between the proceeds from the sale of the stock and the value on the date of your mother-in-law’s death. That’s because property receives a so-called “step-up” in basis upon the death of the owner. Technically, any capital gains will be taxed to your stepfather-in-law as the owner of the account. It would seem fair …

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