Navigating the Murky Waters of Estate Investment Securities

There are many types of assets that a person can leave to their loved ones after death. One type of asset that estate executors should give careful attention to is investment securities. Securities are investments that people buy with the hope of selling the investment for more money in the future. There are many types, such as stocks, bonds, annuities, and mutual funds. Securities can pass through a person’s estate, or they can pass directly to a named beneficiary upon death. However, in either case, estate executors must be cautious when handling securities because of the different tax implications.  

Like any asset, securities are taxed by Pennsylvania’s inheritance tax. This is true for both probate assets and non-probate assets which pass with a beneficiary designation. 

But another tax that executors often overlook is the capital gains tax. Capital gains taxes are taxes you pay when you sell an investment for more money than it was bought for. The difference between the purchase and sale prices is called a capital gain, and the tax is imposed on that gain. So, in the case of an estate, there is potential for two taxes – the securities are taxed by the PA inheritance tax but will also be charged a capital gains tax if the security is sold by either the executor or the beneficiary receiving the security. 

In our experience, many executors know what capital gains taxes are, but don’t appreciate the implications of the capital gains taxes in estate situations. Handling securities requires careful consideration. If the security is sold, a short or long-term capital gains tax can be imposed at potentially punitive rates. A security which was purchased more than one year ago qualifies for a lower long term capital gains rate. If a security is sold less than one year from purchase, the tax is imposed at a higher rate. In some cases, it may make sense to hold the security to take advantage of a lower tax rate. 

But the tax rate is not the only consideration. For example, if the security is not sold, the executor can be held responsible to the beneficiaries if the asset loses value. Executors have a duty to preserve the value of the estate and can be subject to personal liability if a disappointed beneficiary files a court petition.  

Our goal is to help estate executors honor their loved one’s wishes and ensure that the estate is done right. As a probate attorney to estate executors, we help settle estates efficiently and reduce stress. If you know someone faced with a probate process or roadblocks to a property sale, please have them contact us for a free evaluation at: 

 Phone: (215) 918-4242 

 Email: info@pennsylvaniaprobatelawfirm.com 

 If you are not quite ready for a consultation, download our complementary probate handbook HERE. We’ll send you helpful probate guides and resources so you know how to handle the estate.