dispersing from a trust

[LKNmermaid]

Is it better tax-wise to sell a stock before dispersing from a trust or transfer to a recipient and then let recipient sell the stock?

 

[rk911]

better for who? i've done it both ways although not with stocks but with mutual funds.

 

[LKNmermaid]

I am wanting what is best for the trust ... I after I posted, a FA said that recipients can use stock price at dispersal as their cost basis and then sell or keep as they wish.
Unless the trust needs to show a loss ... by selling a loser stock.

 

[Sunset]

I am wanting what is best for the trust ... I after I posted, a FA said that recipients can use stock price at dispersal as their cost basis and then sell or keep as they wish.
Unless the trust needs to show a loss ... by selling a loser stock.

(Just thinking out loud, hoping someone can confirm my thoughts):

Doesn't that mean that a trust disbursing the stock has to recognize the gain just as if they had sold it, given the cash, and recipient purchased the stock ?

So on a gain, it makes no difference to the trust taxwise.

I imagine the rule is the same for a losing stock disbursed.

Of course additionally a trust could sell winning and losing stocks without disbursement and follow the normal gain/loss rules for taxes.

 

[HarveyS]

Depends on the trust. You should have a lawyer review as well as FA. When DM passed there were 2 trusts. One in her name (passed with step up basis like any other asset she had) and one as a decedent trust (no step in basis as assets transferred upon DF death into this trust).

 

[Texas Proud]

If the person is going to sell the stock there is no difference..


Trust sells stock and distributes cash... trust recognizes the gain... trust pays no tax on the gain as the gain is distributed to the beneficiary through the K-1...


Trust distributes stock... beneficiary sells stock... beneficiary gets the cost basis of the trust and has the exact same gain as if the trust sold the stock.. and same tax effect...


Now if the bene does not want to sell then distribute shares out.

 

[CaliKid]

I am wanting what is best for the trust ... I after I posted, a FA said that recipients can use stock price at dispersal as their cost basis and then sell or keep as they wish.
Unless the trust needs to show a loss ... by selling a loser stock.

That's wrong. The date of distribution from the trust has nothing to do with the basis. The basis is based on the date of death or in rare cases the alternate valuation date (that all assuming it was inherited at death).

 

[SecondCor521]

I am wanting what is best for the trust ... I after I posted, a FA said that recipients can use stock price at dispersal as their cost basis and then sell or keep as they wish.
Unless the trust needs to show a loss ... by selling a loser stock.

I doubt the FA is right about that, or you misunderstood.

The IRS would want to tax the entire gain on the stock. If a trust owned stock with a basis of $10 per share that is currently valued at $15, and the beneficiary gets the stock and sells it at $20, I don't believe that the IRS would be OK with just getting taxes on the second $5 of gain (outside the trust) and not the first $5 of gain (inside the trust).

I do know that the one trust I'm involved with is governed by state law and the trust document. Sometimes what you want to do may or may not be permitted. Maybe nobody notices, but I'd still try to do it legally.

Also, even if a trust generates a capital gain, it may or may not be able to and may or may not elect to distribute all of a realized capital gain to the beneficiary. It may be possible to split the gain so that some of it is taxable to the trust and some of it is taxable to the beneficiary (via the K-1).