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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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An estate has an account with an Brokerage company. The fees

Resolved Question:

An estate has an account with an Brokerage company. The fees to liquidate the account will amount to $20,000. Are they deductible from the gross estate?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello plumber,

Brokerage fees for selling property or other assets of the estate are deductible where the sale is necessary in order to pay the decedent's debts, or the expenses of estate administration or to effect distribution of the estate assets. Otherwise the brokerage fees would not be deductible.

If this was helpful please press the Accept button.

Thank you plumber.

Customer: replied 7 years ago.
I understand your reply but still do not have an answer. The last part of the sentence says, "to effect distributiion of the estate asets". The beneficaries of the residue, following payment of taxes, want cash. Does this qualify as a necessary estate administration?
Expert:  Merlo replied 7 years ago.
Hello again plumber,

If the distributions can be made equitably among the beneficiaries without first converting them to cash, then this would not qualify as a deductible administrative expense.

In other words, say for example there are $1 million in securities to be split between 4 beneficiaries. If those securities can be split so that each beneficiary receives their exact share of $250,000 each, then the cost to cash in those securities is not allowed as a deduction. On the other hand if you have to sell all or a portion of those securities in order to be able to make an equal distribution to each beneficiary, then the brokerage fees are an allowed administrative expense. The beneficiaries merely wanting cash does not qualify for the expense to be deductible.

If this was helpful please press the Accept button.

Thank you plumber

Customer: replied 7 years ago.
Thank you for your reply-
In our case, there are 5 beneficiares, all of whom want cash. The securities consist of 38 stocks and 5 bonds- no cash. There is no easy way to divide the total value by 5. If we cash out the brokerage account, then divide the sum by 5, is the brokerage fee deductible on the 706?
Thanks again
Expert:  Merlo replied 7 years ago.
Hello again plumber,

You can cash out the entire account if you wish, but that does not mean the fees would be a deductible expense for the estate, as your purpose for cashing out the account would just be to convert the securities to liquid assets for ease of distribution.

The only brokerage fees which you may deduct will be for securities which you are forced to sell in order to make an equitable distribution.

If there are 38 stocks, each of the 5 beneficiaries should be given 20% of each stock. If this results in an uneven distribution, you should sell only enough shares of each stock in order to make the distribution equal. As an example, say that Stock # XXXXX consists of 26 shares of the ABC Company. Each of the 5 beneficiaries should be given 5 shares of ABC Company and the remaining one share should be sold, and the cash from that share distributed to the 5 beneficiaries. This same method is used for each of the stocks and bonds owned.

If you simply choose to cash in all of the securities because the beneficiaries prefer to be paid in cash, you can do so but the brokerage expenses will not be deductible.

If this was helpful please press the Accept button.

Thank you plumber




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