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Property or Cash: What's an Heir to Choose?

If you are among those fortunate enough to be beneficiaries of an estate, you may find yourself faced with a decision whether to take some or all of your inheritance as cash or property. A distribution of property is often termed an “in kind” distribution since you get exactly what the decedent owned. This option usually is not available where you are the beneficiary of a bequest of a specific dollar amount since that bequest normally will be satisfied in cash (or, more accurately, by check).
Cash has the virtue of being easily transferrable once the property of the estate has been turned into cash by way of sale. It also has the virtue of being very easy to invest in whatever investment a beneficiary chooses. However, along the way, the cash may be subject to various forms of friction such as sales charges and income taxes which can be a disincentive to liquidation followed by distribution.
Receiving property in kind can make a lot of sense where, for example, a beneficiary is attached to a particular item owned by the decedent such as a home, work of art, book or coin collection or other similar property. In other cases, a beneficiary may wish to receive a particular stock or other security in kind so as to add it to the beneficiary’s investment account and possibly to avoid any capital gains tax due on post-death appreciation. This can be significant in situations such as this year’s big stock market advances. As you can see, distribution in kind won’t require a sale or the payment of income tax and allows the beneficiary to enjoy a step-up in the cost basis of the property to its date of death value.
Of course, as a beneficiary you may not be offered a choice. Sometimes the executor or the attorney for the estate prefers the simplicity of liquidation and distribution in cash. You will need to not only know what the estate owns but also communicate your desire to receive some property in kind if this approach is going to work. Knowing that you may have options in how you can receive funds from an estate can be useful and should be considered.


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