Question: I am the co-trustee of my mother's revocable trust. Is it best to sell stocks held in my mother's revocable trust before or after her death?
Response: Probably you should wait. This is because property in a revocable trust gets a “step-up” in basis upon the grantor’s death, thus eliminating or greatly reducing the tax on capital gains.
Here’s how this works: When you sell stock (or other property, such as real estate, for that
matter), the capital gain is determined as the difference between the property’s basis and the
proceeds of the sale. In most cases, the basis is the purchase price.
So, by way of example, if your mother purchased the stock in her trust over time for $250,000 and she sold it during her life for $500,000, she would realize $250,000 in capital gains. The tax
on this would be about $37,500 to the IRS, plus any state tax.
(The capital gains tax rate is graduated to some extent, with no tax for taxpayers with income up to $48,350, then 15% on income up to $533,400, and 20% for those with incomes above this threshold. These are the 2025 thresholds and are adjusted each year to reflect inflation.)
This tax can be avoided if you wait to sell the stock until after your mother’s death because then the basis will be adjusted, or “stepped up,” to the stock’s date-of-death value. If that is $500,000 and you sell it for $500,000, there will be no gain and no tax. If between your mother’s death and the stock’s sale the value increases to $550,000, then there will be gain of $50,000. However, if the stock value drops to $450,000 before its sale, you and the other heirs will not be able to take a $50,000 loss on your tax returns. The beneficence of the tax rules only goes so far.
So, to answer your question, if your mother’s stock holdings are highly appreciated, it probably makes sense to hold off selling them until after her death. But there are factors to consider. Your mother may have high medical expenses, which would mean she needs the funds today and could allow her to take deductions that would offset the capital gains. You also might be
concerned that the Trump administration tariffs will cause a recession and a stock market crash.
While investment advisors always counsel us not to “time the market,” cash is less volatile than stock holdings.
In short, the tax on capital gains is just one factor to consider in deciding when to sell the stock in your mother’s revocable trust.
Harry S. Margolis practices elder law, estate and special needs planning at Margolis Bloom &
D’Agostino in Wellesley, Massachusetts, and a Fellow of FreeWill.com. He is author of The
Baby Boomers Guide to Trusts: Your All-Purpose Estate Planning Tool and answers consumer questions about estate planning issues at www.AskHarry.info. Please post your estate planning questions there.