1099 on estate or heirs

Submitted by Douglas Bauerband on Tue, 2016-11-01 20:33

Client passed away and we transferred her brokerage account over to an estate account;

We are now going to sell the stocks (worth about 100k).

When we sell the stocks, is there a 1099 issued to the estate?

or…

is their a 1099 issued to the 2 heirs for half of their shares of stock sold?

Thank you,

Douglas



Submitted by Alan - IRA critic on Tue, 2016-11-01 22:08

Apparently the brokerage account had no joint tenant or TOD beneficiary and therefore became an asset of the estate. If the estate then sells shares, the 1099R will be sent to the estate showing the estate EIN. The estate then reports any gains occurring after death (or possibly losses) on a 1041 if the 1041 is required, but could pass the taxes on the gains through to the heirs on a K 1.



Submitted by Ben Meyer on Wed, 2016-11-02 21:31

  • There are potential income tax implications when a trust or estate sells an asset and realizes a capital gain.  Capital gains are usually taxed to the trust or estate at compressed fiducuary tax rates, and are not distributable to beneficiaries on schedule K-1.  Under the compressed fiduciary tax rates, the highest tax brackets are reached with estate income of only around $12,000.  However, under some circumstances the capital gains may be treated as earnings and distributed.  Then any capital gains would be taxed to the legatees.  Therefore, a fiduciary tax specialist should be consulted to examine the terms of the will or trust, and also state law, to determine an optimal course of action.
  • The question of capital gain tax within the estate can be avoided by distributing the stocks in kind to the legatees instead of selling the shares within the estate.  The legatees would then be able to decide for themselves when to sell the shares and realize any gain or loss.
  • Also consider that there would be a realized gain only if the stock increased substantially in value after the date of death (or, possibly, the alternate valuation date).  So if there has not been much of an increase, selling the shares within the estate may be satisfactory tax-wise.


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