How is this inheritance handled?

[AnnieR]

Client had an aunt who passed away on 01/09/07. The last of the estate was settled this week. There are 4 heirs, client received a check from the executor, along with a letter telling her to divide the check equally among the heirs. Only question she has is: money received is from sale of stock...must she determine the basis (Daimler Chrysler) and issue 1099s or just divide the check into 4 equal portions and send the checks. Considering the company, I would imagine this would be a loss, so would it just be considered a non-taxable distribution...write the checks and mail them?

Thanks, AnnieR

[SFBOB]

The executor is responsible for filing the final tax returns for the decednet and very likly a 1041 for the estate or trust. This could be a good opportunity for you to do the correct work for the executor. I am sure you will receive several reply to your question. Good Luck Bob

[Don in Upstate NY]

Several items of concern ...

Since the estate has been open for over three years, several 1041 returns should have already been filed. Since you say that the estate has finally been settled, have you received any previous distributions or K-1s from the executor? Was the Chrysler stock the only (or major) asset?

It is also the job of the executor to distribute the proceeds of the estate. Why are you getting a check for the other heirs? Are they your minor children?

Why has the estate apparently held the stock so long before selling it? It's not like Chrysler was a closely held family business with no liquidity in early 2007.

This could be a good opportunity for you to do the correct work for the executor.

I respectfully disagree.

[Margaret CPA in OH]

I with Don on this one. In any event, the executor should have has a list of estate assets and valuation, including basis of all securities, in 2007 for probate and/or an estate return. The heirs should receive a copy of this in order to show the basis of any stock and why was the stock not distributed to the heirs and sold instead?

[jainen]

>>why was the stock not distributed to the heirs <<

What's the diff? Estate administration has many details, and we can't second-guess them. Basis is only an issue for the executor, who isn't asking about it. I don't see any particular problem with one of the heirs helping make the distribution.

[Margaret CPA in OH]

I just asked the question. Would it be a fair assumption for the heir that the estate determined and took the gain or loss on the sale and the proceeds are after tax? Would not that sale have to be reported somewhere? With the cash distribution, wouldn't it then just be a tax-free inheritance? Which, of course, was the original question.

As usual, you are correct that the basis is/was an issue with the executor, not the heirs, as the stock was sold prior to finalizing the estate. I presume the executor had the knowledge of the wishes or intentions of the deceased and that the heirs would not have chosen, given the opportunity, to keep the stock (regardless of what it was).

[jainen]

>>Would it be a fair assumption for the heir that the estate determined and took the gain or loss on the sale and the proceeds are after tax?<<

I have no idea--what would the heir base that assumption on? Why not just ask the executor?