Estate distribution to beneficiary - asset values change

Technical topics regarding tax preparation.
#1
Wiles  
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I have an estate administration / legal question.

For example, Dad dies and leaves estate equally to his 2 sons. At time of death, there are two assets:
* Residence $1 million
* Stock portfolio $1 million
Son A chooses the residence and Son B chooses the stock portfolio.

A few months go by and they are now distributing the assets. Are we supposed to revalue the assets on distribution date and reallocate in order to maintain equal distributions?
 

#2
Dennis2  
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Depends. If beneficiary choice was made early you have separate shares. If beneficiary choice was made at distribution should be equal. how does house guy feel about paying forhis share of the administration expense?
 

#3
Wiles  
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Thanks, Dennis. In your experience what do you see when it comes to prorata distributions such as these? Is it 99% using DOD values?

I have an attorney telling me we need to redo allocations due to changes in the stock portfolio. One beneficiary is then suggesting with his tongue in cheek that we should revalue the real estate while we are at it.

Re: house guy - I simplified the example. There is cash available too.
 

#4
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Dennis. In your experience what do you see when it comes to prorata distributions such as these?

These aren’t pro-rata residuary distributions. Pro-rata would be a ½ interest in each asset. It could be that that is what is deemed to have happened, with each bene acquiring the “other half” of his or her asset via a taxable sale/exchange from the other bene outside of the estate. I know there’s a ruling on that point, RR 69-486. I would think that state law would come into play, which would include the will, and which would encompass the executor’s authority to make disproportionate distributions. If that authority exists, to make disproportionate distributions, then there would be no deemed sale/exchange between the beneficiaries. Either way, these comments don’t answer your question, but they might factor into the analysis as provided by Dennis.
 

#5
Dennis2  
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Outside of the possibility of creation of separate shares (which would not be your decision) i agree with Jeff. You want to avoid any possibility being characterized as a sale. Pro-rata is the easiest way to go with the beneficiaries settling the details oh house ownership after distribution
 

#6
Wiles  
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Thank you, Jeff & Dennis.

These aren’t pro-rata residuary distributions.
Yes. I meant to say non pro-rata.


Dennis: You want to avoid any possibility being characterized as a sale.

Jeff: Pro-rata would be a ½ interest in each asset. It could be that that is what is deemed to have happened, with each bene acquiring the “other half” of his or her asset via a taxable sale/exchange from the other bene outside of the estate.

Dennis: Pro-rata is the easiest way to go with the beneficiaries settling the details oh house ownership after distributio

How does settling outside the estate meet the goal of avoid being characterized as a sale?
 

#7
Dennis2  
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Settling outside the estate avoids the possibility of disproportionate distributions being characterized as a sale at a later date.

As Jeff said, dependent on state law and perhaps also a friendly surrogate you have other options. The court procedure with both sides in agreement shouldn't be too expensive. Or, if language and law allow equal value distribution at executor's discretion. All assets would have to be revalued.
 


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