The Executor Adviser is an advice column created by Executor.org for Legacy. Executor.org’s experts aim to help readers with questions about executorship and provide comprehensive, free online resources to guide executors through this complex process.
Whether the estate you’re settling is large or small, if you find that the will writer owned any stocks you may be confused as to whether you should sell those stocks or hold them.
Decisions like this typically cannot be “undone” and could have tax implications for both the estate and the beneficiaries, so what you do with the stocks might be the most important decision you’ll make as executor.
As with most things related to the executor role, the answer to this question is not as simple as “yes” or “no.” There are a number of variables to consider, so talking to a professional before making a move is advised in almost all cases.
That said, here are a few things you’ll want to know:
One of the more important principles on this subject is date-of-death valuation. In simple terms, this means that stocks are valued as of the date the will writer died, not when a stock is purchased. What does this mean? As an example, consider a share of stock was purchased for $20 but it was worth $100 on the date of death. If you sell the stock for $100, no taxes will be due. It will be valued as of their date of death (at $100), so there is no gain from a tax standpoint. If it is sold for $110, tax will typically be due on the gain of $10. Said another way, if you’re worried about selling a stock because of the big gains that have occurred in the stock over many years, that concern is eliminated by this rule in most cases. The rule can also greatly simplify your hunt through old records to find when the stock was purchased.
Selling Assets Versus Closing Accounts
Because of date-of-death valuation, in most cases, the tax impact of selling a stock will not be severe. However, closing an investment account can have a significant negative impact on a beneficiary. If assets are in retirement accounts (an IRA, for instance), those accounts can in many cases be rolled into an Inherited IRA. This can have very positive tax implications for the beneficiary, as that money will be able to grow tax-deferred over their lifetime. Given that, you’ll definitely want to get professional counsel before closing any retirement account of any kind.
Let me make an important distinction. Your job as executor is to “preserve” assets, not “grow” them. This can be an important principle in determining if you’ll sell or hold stocks. In many cases, the estate will be closed and assets will be distributed within 12 to 18 months. Given date-of-death valuation, a strong argument can be made that the most conservative approach is to sell stocks and minimize the risk of a market correction. Again, whether this approach is right for you is dependent on many factors, including the financial situation of the beneficiaries. Beneficiaries, who will typically have much longer investment time horizons can then purchase stocks that are a fit for their portfolios, whether those assets are in general accounts or Inherited IRAs.
As a final thought, one of my favorite principles related to executorship is that it’s your job to “manage” this process, NOT to do everything yourself. Given that, I would seek out counsel from a qualified financial advisor before making decisions related to the management of the estate’s financial assets.
If you’d like to learn more about selling stocks as an executor and get a free custom plan to help you understand and manage your executor duties, please visit Executor.org. You’ll get a free digital checklist of your required tasks, and have a place to store important information to help you stay organized. The site covers everything you’ll need to know to settle an estate as quickly and as easily as possible — and gives you a proven step-by-step approach to managing this complex process.
Have a question about executorship? Get an answer by sending an email to [email protected].
About the Author: Patrick O’Brien is CEO and co-founder of Executor.org, a free, comprehensive online resource that helps executors manage their responsibilities and duties in this complex role. The free tools include a helpful step-by-step interactive guide for executors and invaluable tips on everything from planning a funeral and keeping beneficiaries happy to dealing with grief and managing estate assets.