Whether you can sell stocks in a trust after death generally depends on the specific terms and conditions of the trust and the laws of the jurisdiction in which the trust was established.
If the trust agreement allows for the sale of stocks, the trustee can sell the stocks as directed by the trust agreement. However, if the trust instrument does not explicitly allow for the sale of stocks, the trustee may need to seek court approval to sell the stocks.
Typically, after the death of a trust creator (also known as the grantor or settlor), the trust becomes irrevocable and the assets in the trust, including stocks, are managed by a trustee according to the terms of the trust document. When a trust is used as an estate planning tool, it will often call for the trustee to transfer all of the assets to the beneficiaries and then terminate the trust.
However, in some cases, the trust is not meant to terminate and the beneficiaries are simply to receive income from the trust. In this situation, the trustee has a fiduciary duty to manage the trust assets for the benefit of the trust beneficiaries, which may or may not include selling stock owned by the trust.
It is important to note that different jurisdictions have different laws regarding trusts and their administration, so it is best to consult with a trust attorney to determine the specific rules and procedures for selling stocks in a trust after the death of the grantor.
Can You Transfer Stock From a Trust To a Beneficiary?
Yes, as a trustee, you can transfer stock from a trust to a beneficiary without selling it if the terms of the trust allow you to do so.
If the trust instrument allows for the transfer of stock to a beneficiary, the trustee can transfer the stock as directed by the trust agreement. In some cases, the trust agreement may establish conditions that must be met before the stock can be transferred, such as reaching a certain age or obtaining a particular degree.
If the trust document does not allow for the transfer of stock, the trustee may need to seek court approval to transfer the stock to a beneficiary.
How Do You Transfer Inherited Stock from a Trust?
The process for transferring inherited stock from a trust to a beneficiary depends on the terms of the trust and the laws of the jurisdiction in which the trust was established.
Before attempting to transfer stock from a trust, the trustee should review the trust instrument to determine if the trust allows for the transfer of stock and what conditions, if any, must be met before the stock can be transferred. If the trust agreement allows for the transfer of stock, the trustee should follow the steps outlined in the document to transfer the stock to the beneficiary. This typically involves the transfer of the stock to the beneficiary’s existing brokerage account or setting up a new one.
Do Beneficiaries Pay Taxes On Inherited Stock?
No, beneficiaries generally will not have to pay taxes on inherited stock if they do not sell it.
In the U.S., there is no federal inheritance tax and only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) assess inheritance taxes at the state level. Plus, even in those states, many beneficiaries are exempt from paying.
Additionally, stocks that are passed through a will may be subject to estate taxes. However, these taxes are paid by the estate, not the beneficiaries, and can often be avoided through the use of a trust.
Therefore, the most important tax consideration for trust beneficiaries is usually the capital gains taxes they may incur when selling inherited stock. While capital gains are typically calculated by subtracting the original purchase price from the sale price, when a beneficiary inherits stock, the cost basis is “stepped up” to its fair market value on the date of the decedent’s death.
This means that if the beneficiary later sells the stock, the capital gains tax is calculated based on the difference between the fair market value at the time of inheritance and the sale price, rather than the original cost of the stock. Often, this results in a lower tax liability for the beneficiary.
What If Beneficiaries Dispute the Trust Distributions of Stock?
The first step in resolving a dispute over trust distributions should be to review the trust document to determine the terms of the distribution. In some instances, the trust instrument may specify how the stock should be divided among the beneficiaries. Even if this information is not explicit, the document should detail the level of authority the trustee has to make distributions.
Often, trustees have a great deal of discretion in administering a trust. However, trustees also have a fiduciary duty to act in the beneficiaries’ best interests and abide by the terms of the trust. If the trustee made a distribution that violated the terms of the trust or their fiduciary duty, the beneficiaries may be able to seek legal recourse. But if the distribution was made according to the trust’s instructions, the beneficiaries will likely be unable to do anything about it.
If beneficiaries dispute the distribution of stock from a trust, it’s important for all parties involved to discuss the situation with a probate litigation attorney. A knowledgeable lawyer can help the parties understand their rights and obligations under the trust document and the law.
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About RMO Lawyers, LLP
RMO LLP provides personal and efficient inheritance dispute services to individual and institutional clients. The firm’s attorneys focus on probate litigation involving contested trust, estate, probate, and conservatorship matters. Serving California and Texas, with offices in Los Angeles, Pasadena, Orange County, San Diego, Fresno, the Bay Area, Dallas, and Houston. For more information, please visit https://rmolawyers.com/.