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(A) if it is a revocable trust, then it is still owned by the deceased person at their death. A step up in basis applies (it would not if an irrevocable trust was in place). This means that if x stock is worth $1000 at death but was bought for $200 at some other point (the basis), then at death the basis goes up to $1000 (value at death), so when it is sold at that time there is no or little gain.
(1)(a) yes, to the extent that there actually is a gain (it does not matter what the proceeds are used for) - see answer in (A).
(b) it will depend on how the distribution was classified. If the stock is given to the heir then the heir would be responsible for any gain, if not then the estate would be responsible. So sale then cash would make the estate pay capital gains on the stock (this sale can only occur if the executor is given the power to make such sales).
(c) See (b)
(d) heirs do not have to pay any taxes on cash received or other distributions. If they receive stocks or mutual funds and then sell those. They would pay taxes on the gain (remember the step up in basis) after they actually take ownership of the stocks/funds.
(B)(1) NO capital gains are paid if the stock is not sold by the estate. The heirs would be responsible for that when/if the stock/funds are sold (remember the step up in basis).
(2) Yes, see (1)
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