My mom died with a stock portfolio. If the stock is distributed, it is at a stepped-up basis. If then...?

Question

immediately liquidated, no appreciable capital gain or loss. Question: What if the estate liquidates the portfolio and distributes cash? Will the estate have to pay a capital gain tax, thus resulting in a lessor amount to distribute to the heirs than had it been distributed as stock?

Answer 1

The estate would have no appreciable gain or loss.

Answer 2

If the property is sold and the proceeds are distributed to the beneficiaries within the same tax year, the beneficiaries will pay any capital gains taxes, not the estate.   The capital gains will be long-term and will be the same as if the individual had received the property and then sold it.  

The estate tax return will issue Form K-1 to the beneficiaries, showing the distributed income as interest, dividends, capital gains, etc.

The basis of the stock for the estate is going to be the same as the stepped up basis for the heirs.