[Oxlobber]

I had trading authority for my mother’s brokerage account.
My mother’s will distributes her assets equally to her three sons.

March 17: Mom dies
March 19: One brother expresses concern about the potential for loss of a portion of his inheritance because he is concerned about the stock market
March 20: I sell approximately 1/3 of mutual funds and equities to “protect” my brother’s share
March 27: the will is probated; the third brother becomes the executor
As of April 5 the brokerage account is frozen, awaiting transfer to an account in the name of the estate

Assuming that there was a gain in the sold-securities’ value:
Who is liable for paying capital gains taxes for the shares sold on March 20?
Does the basis for those shares receive a step-up to March 17 (date of death) values?
Is the gain treated as a long term gain?
In reporting the subsequent sale of securities by my (executor) brother and me, can we use as basis the price of those securities 6 months after the date of death, if that is more advantageous?

Thank you.

[AtlantaTaxExpert]

Even though you had trading authority, the brokerage account belonged to the estate, so the capital gain would be paid under the fiduciary return (Form 1041) that the estate must file.

You can use the stepped-up values for basis, and the gain IS treated as long-term.

You CANNOT use the 6-month value on basis.

[Oxlobber]

At the time of the sale, the estate had not been probated; the sale took place in the account while it had my mother's SS Number and I expect the 1099 to attribute the sale to her. Can I just include the gain on her final return? If not, is it possible convince the broker to report the sale under the EIN for the estate account which had yet to be established? I am trying to envision the logistics.

Thanks for your input.

[ebaines]

You CANNOT use the 6-month value on basis.

To clarify - I believe the way it works is the heirs do indeed use the 6-month cost basis IF the estate used that value in determing its value for estate tax purposes. This would only be done only if estate taxes are due and the amount of taxes due would be less by using the alternate valuation date. So the determination of which date to use is not up to the heirs, but rather is determined by the executor in preparing the estate tax filing to minimize estate taxes.

If no estate tax is due, then I believe you are required to use the date of death as the valuation date.