The Guide To Liquidating Stocks After Death

If your loved one dies and leaves behind a significant portfolio of stocks, navigating the legal process to liquidate those assets can be complicated and often stressful. And if you are the executor or the trustee in charge of handling the estate’s property, the complexities are even more significant. For this reason, it’s advisable to consult with an experienced lawyer before making any decisions about how to distribute assets and whether to liquidate stocks. 

How Do You Liquidate Inherited Stock?

The process for liquidating inherited stock is fairly straightforward. Once the stock is in the beneficiary’s brokerage account, they can sell the stock by placing a sell order through the brokerage. The beneficiary can choose to sell the stock all at once or to sell it in smaller portions over time.

Before liquidating inherited stock, however, beneficiaries should keep in mind that the sale may have tax implications. We suggest consulting with a tax professional before making any decisions about selling your inherited stocks.

Should the Executor Liquidate Stocks?

Whether an executor should liquidate stocks depends on the specific circumstances of the estate and the goals of the beneficiaries. The decision to liquidate stocks should be made in accordance with the terms of the will and with the best interests of the beneficiaries in mind.

If the will specifies that the stocks should be sold, then the executor is obligated to follow the terms of the will and liquidate the stocks. Likewise, if the will specifies that the stocks should be transferred, the executor must obey those instructions.

However, if the will does not specify what should be done with the stocks, then the executor should consider the financial needs and goals of the beneficiaries when making a decision about whether to sell the stocks.

Regardless of the decision, the executor has a fiduciary responsibility to act in the best interests of the beneficiaries and to manage the estate’s assets prudently. If the executor is unsure about whether to liquidate stocks, they should consult with an estate attorney for guidance.

How Should We Divide Inherited Stocks?

The division of inherited stocks should be guided by the terms of the will or trust if one exists. If no estate planning documents are available, then the stocks must be divided according to state intestacy laws.

If the deceased person had a will or trust, it should specify how the stocks and other assets should be divided among the beneficiaries. The executor or administrator of the estate should review the will to determine the exact terms of the distribution.

However, if the deceased person did not leave any estate planning documents explaining how their assets should be distributed, the stocks will be allocated according to the intestacy laws of the state where they passed away.

State intestacy laws dictate how the person’s assets, including stocks, should be distributed among their heirs. The specifics of intestacy laws vary by state, but generally, the assets are distributed among the deceased person’s closest surviving relatives, such as their spouse and children. 

Do Beneficiaries Pay Taxes On Inherited Stocks?

No, beneficiaries typically do not pay taxes on inherited stocks they do not sell.

This is because the U.S. has no federal inheritance tax and only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) levy inheritance taxes at the state level. Additionally, even in the states  that have inheritance taxes, close family beneficiaries and smaller inheritances are often exempt.

However, stocks that are inherited through the probate process can be subject to estate taxes if the deceased person has a large enough estate. Nonetheless, estate taxes are paid by the estate, not the beneficiary who will inherit the stock. By the time the beneficiary inherits the stock, the executor of the estate will have already handled the estate taxes and the beneficiary will not have to pay. 

Still, it’s important to keep in mind that beneficiaries do have to pay income taxes on their taxable gains if they sell inherited stocks. The taxable amount will be calculated by subtracting the stock’s fair market value (FMV) on the day the deceased person passed away from the final sale price. So if you sell an inherited stock for more than it was worth on the date of death, the difference will be considered a taxable gain.

Can I Contest How Stocks Are Distributed?

Yes, you may be able to contest how stocks are distributed in some situations. 

However, it’s essential that you understand that you cannot contest the distribution of stocks just because you disagree with the deceased person’s wishes. Generally, the distribution of stocks and the estate’s other assets will be controlled by the deceased person’s will or trust. If this document provides explicit instructions for how the stocks should be distributed, the executor or trustee is legally obligated to comply with them,. For this reason, you typically won’t be able to challenge the distribution without contesting the legal validity of the the estate planning instrument itself.

However, there may be some instances where the will or trust does not explicitly detail who should receive stocks or how they should be distributed. In these instances, you may be able to contest a distribution of stocks that goes against the deceased’s expressed wishes or is not in the best interest of all of the beneficiaries.

If you disagree with how stocks are being distributed after a loved one’s death, you should consult with a knowledgeable probate litigation attorney as soon as possible. Your lawyer will be able to explain your rights under the will and trust involved and advise you as to whether you have an enforceable legal claim. 

Have questions? We’re happy to discuss.
Call (424) 320-9444 or email [email protected]

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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/.

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