Dissolving 25 year old trust

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mitchatwrk
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Dissolving 25 year old trust

Post by mitchatwrk »

I am set to inherit 1/3 of a 600k trust. In dissolving the trust we are given two options, 1. 19 equities get liquidated and the trust pays the taxes of approximately 40k. 2. We transfer the shares of all 19 equities to all 3 of us and pay the taxes at a later date when I sell any or all of the allocated shares. What math should I be using to figure out the best scenario? I don't need the money near term yet also don't want 19 different funds that were established 25 years ago.
spammagnet
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Re: Dissolving 25 year old trust

Post by spammagnet »

mitchatwrk wrote: Mon Jan 30, 2023 7:15 pm I am set to inherit 1/3 of a 600k trust. In dissolving the trust we are given two options, 1. 19 equities get liquidated and the trust pays the taxes of approximately 40k. 2. We transfer the shares of all 19 equities to all 3 of us and pay the taxes at a later date when I sell any or all of the allocated shares. What math should I be using to figure out the best scenario? I don't need the money near term yet also don't want 19 different funds that were established 25 years ago.
Do all beneficiaries have to agree to the same disposition?
z3r0c00l
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Re: Dissolving 25 year old trust

Post by z3r0c00l »

Sounds like very low taxes, I would just get it done right away. As you indicated, holding 19 stocks doesn't sound so fun. Complex enough to be a pain in the rear to monitor and deal with later, concentrated enough to be taking on extra risk you don't need.
70% Global Stocks / 30% Bonds
Mike Scott
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Re: Dissolving 25 year old trust

Post by Mike Scott »

Is the tax rate for the trust higher or lower than your tax rate?
Topic Author
mitchatwrk
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Re: Dissolving 25 year old trust

Post by mitchatwrk »

As of now we are in agreement to divide up the shares to avoid taxes but in thinking a bit more, it just feels better to me to get the cash and invest on my own.
psteinx
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Re: Dissolving 25 year old trust

Post by psteinx »

You can presumably sell your bits of the 19 holdings fairly quickly, once you receive them. It's not clear if these are stocks or funds, but both can likely be sold for very little in commissions/transactions costs (there are exceptions, but that would be the norm).

So the key is whether the tax burden would be more or less if you sold vs. the trust. IIUC, trusts generally have higher tax rates than most individuals do, so there's a good chance your share of the tax burden would be less if you sell the stuff yourself.

(I am not an accountant nor a lawyer.)
Last edited by psteinx on Tue Jan 31, 2023 10:24 am, edited 1 time in total.
UNCHEEL
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Re: Dissolving 25 year old trust

Post by UNCHEEL »

The tax rates for trusts are extremely progressive with almost no 0 bracket. Pass out the shares and each person can do as they wish.

For one Non-QTIP trust I manage that would be split 6 ways, I keep the shares for each asset in multiples of 6. For a QTIP trust, I don't worry about it, since there would be a stepped up basis.
Joey Jo Jo Jr
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Re: Dissolving 25 year old trust

Post by Joey Jo Jo Jr »

If the trust sells its assets and dissolves in the same tax year then the taxable gain is passed out to the beneficiaries. Even still, it’s better to distribute in kind so each beneficiary can decide if and when to sell for themselves.
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celia
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Re: Dissolving 25 year old trust

Post by celia »

mitchatwrk wrote: Mon Jan 30, 2023 7:27 pm As of now we are in agreement to divide up the shares to avoid taxes but in thinking a bit more, it just feels better to me to get the cash and invest on my own.
Assuming you have access to the cost basis for each holding (as of day of death of the deceased previous owner?), you can take the shares in-kind and sell them off when it makes most sense to you, and invest the proceeds in what you want. You can sell part of them this year and part next year (or in future years) to spread the capital gains out instead of taking it all in one year.

This will give you the ability to control your taxes while also planning what you want to invest the proceeds in instead of doing it all in one day.
Topic Author
mitchatwrk
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Re: Dissolving 25 year old trust

Post by mitchatwrk »

Thanks everyone, we will just proceed with transferring the shares in kind, that seems to be the general consensus.
hudson
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Re: Dissolving 25 year old trust

Post by hudson »

mitchatwrk wrote: Tue Jan 31, 2023 8:46 am Thanks everyone, we will just proceed with transferring the shares in kind, that seems to be the general consensus.
It's good to come to an agreement quickly.
If I were in your shoes, the minute that the shares showed up in my account, I'd sell them all. I'd estimate the tax and send payment to the IRS and the state.
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celia
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Re: Dissolving 25 year old trust

Post by celia »

mitchatwrk wrote: Tue Jan 31, 2023 8:46 am Thanks everyone, we will just proceed with transferring the shares in kind, that seems to be the general consensus.
Make sure you transfer the shares to a custodian who doesn’t have fees for selling shares. And if you create a new account for these, check to see if there is an account closing fee.
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mitchatwrk
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Re: Dissolving 25 year old trust

Post by mitchatwrk »

celia wrote: Tue Jan 31, 2023 10:21 am
mitchatwrk wrote: Tue Jan 31, 2023 8:46 am Thanks everyone, we will just proceed with transferring the shares in kind, that seems to be the general consensus.
Make sure you transfer the shares to a custodian who doesn’t have fees for selling shares. And if you create a new account for these, check to see if there is an account closing fee.
Really good point.
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