Question

"A deceased client's trust account has over 90% of its value invested in a single common stock whose recent performance has been outstanding, resulting in a very large unrealized capital gain at the time of death. What action would most likely be taken by the investment adviser handling this account?

A)continuing to hold that stock position if it is felt that it meets the objectives of the trust
B)liquidating a portion of that stock to take advantage of the tax savings offered by the stepped-up basis at death
C)exchanging a portion of that stock for a suitable security held in the adviser's trading account
D)selling all of that stock in order to rebalance the trust's assets"

Answer 1

An investment adviser may either hold the stock position if it aligns with the trust's objectives or liquidate a portion to take advantage of tax savings from the stepped-up basis. Other options include exchanging or selling the stock for rebalancing purposes.

Step-by-step explanation:

In the scenario where a deceased client's trust account is heavily invested in a single common stock that has seen a significant increase in value, an investment adviser would likely take action that aligns with the objectives of the trust and the tax implications of the situation. If the stock continues to meet the trust's objectives and investment strategy, the adviser might choose to hold that stock position (option A). However, considering the large unrealized capital gain and the opportunity for tax savings due to the stepped-up basis at death, the adviser may also consider liquidating a portion of the stock (option B). This would realize some of the gains at a potentially lower tax rate. Exchanging a portion of the stock for another security (option C) or selling all of the stock (option D) could also be considered if it fits within the trust's strategy and serves to rebalance the portfolio.