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Christopher B, Esq
Christopher B, Esq, Attorney
Category: Estate Law
Satisfied Customers: 2982
Experience:  Litigation Attorney with education focus on estate planning and tax
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A.) If upon one’s death, stocks and mutual funds in a

Customer Question

A.) If upon one’s death, stocks and mutual funds in a deceased person’s Revocable Living Trust are sold to pay the deceased’s outstanding house mortgage and other bills as directed by the deceased’s will and/or trust, as well as in order to distribute cash to everyone listed in the will or trust:1.) Does the deceased’s estate have to pay capital gains taxes on all the profits from the sale of these stocks and mutual funds in the trust that are converted into cash for:(a) Mortgage & other bill payments?(b) Cash distribution purposes to the deceased’s heirs?(c) Does the deceased’s spouse have to pay Federal and/or NY State capital gains on any cash monies they receive?(d) Will any of the heirs have to pay Federal and/or MA/NH State taxes on these cash monies they receive?B.) If instead of cashing in all the stocks and mutual funds, the deceased’s will and/or trust says that the shares of all the stocks and mutual funds, after payment of the house mortgage and other bills, all be split into thirds to the 3 heirs such that each person receive one-third of the stocks and mutual funds instead of cash:1.) Does the deceased’s estate have to pay capital gains taxes on the distribution of these stocks and mutual funds to his heirs?2.) I assume in this case that the deceased’s heirs will pay no taxes until such time as each of the heirs themselves decides to sell the stocks or mutual funds in the future and take their own capital gains or losses. Yes? No?
JA: Since estate law varies from place to place, can you tell me what state this is in?
Customer: NY
JA: Have you talked to a lawyer yet?
Customer: No
JA: Anything else you think the lawyer should know?
Customer: NO
Submitted: 12 months ago.
Category: Estate Law
Expert:  Christopher B, Esq replied 12 months ago.

My name is ***** ***** I will be helping you tonight. Thank you for your question and for using

(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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Expert:  Christopher B, Esq replied 12 months ago.

Just checking back in, do you have any further questions?

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