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Discussion Starter #1
My google chi is failing me tonight. Maybe someone out there can help me on this one. I'm trying to determine the book value for shares distributed out of an estate to a beneficiary.

When a person dies, any shares held in a cash account, are considered sold as of the date of death (deemed disposition). That's the easy part. Does the estate have to claim gains / losses on the stocks from the date of death to the date of distribution? Or does the new book value established at the time of death become the book value for the beneficiary?

Example for clarity:

PersonA buys 100 shares of xyz stock at $10/share (total investment / book value $1000).
PersonA dies, and on the date of death, the shares trade at $11/share. So in the final taxes for PersonA, there are capital gains of $1/share or $100 that needs to be reported to the CRA for stock XYZ.

Later after all the bills have been paid, the 100 shares of XYZ are given to Ben (the beneficiary). The day they are transferred, XYZ is trading at $12/share. Does the ESTATE have to pay capital gains on the increased value from the date of death to distribution? OR does Ben have to use $11/share as his ACB for XYZ when he sells the shares?
 

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Discussion Starter #3
Sags, thanks for the link, but I'm not sure it applies. It talks about income (I assume it means actual income, like rent from a property or interest income on a GIC) and not capital gains from the sale of an asset by the estate vs by the beneficiary.
 

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I believe that the estate has to file a T3 and pay taxes on the gain. Some estates can take years to settle, so this can be a very real concern.
 

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A clarifying question. Does the distribution to the beneficiary happen within the same year as the final tax return, or a subsequent year?
 

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Discussion Starter #6
A clarifying question. Does the distribution to the beneficiary happen within the same year as the final tax return, or a subsequent year?
Not in the same year as the final tax return. It was the next calendar year (some less that 1 year from the date of death, some more than 1 year after). Does it make a difference?
 

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The timing is a factor. According to Sandra E. Foster's excellent book, you can't take it with you, Common-Sense Estate Planning for Canadians, 5th Edition, chapter 9 (pg 148),
Sandra E. Foster said:
Your legal representative may also have to file a T3 Trust Income Tax and Information Return to report the income earned annually on any assets held in the estate from the date of death until the assets are all distributed, with a few exceptions.
From my experience with a family trust, trusts are taxed at the highest marginal rate so normally as income is distributed and therefore taxed in the beneficiaries hands. Realized capital gains at the trust level are also distributed.

From the original post it seems the issue is unrealized capital gains, which in my experience are not taxed at the trust level, so when the assets are distributed, the cost basis would be the deemed distribution value.

You might want to take a look at T4013 - T3 - Trust Guide 2013 and T3SUM - Summary of Trust Income Allocations and Designations
 

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Discussion Starter #8
From the original post it seems the issue is unrealized capital gains, which in my experience are not taxed at the trust level, so when the assets are distributed, the cost basis would be the deemed distribution value.
That's the impression I'm under as well. The Gains / Losses on the sale by beneficiary are from the book value at the time of death. So the date of distribution of the asset isn't another deemed disposition for the estate to claim. But the book value flows through with the asset to the beneficiary.
 

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If that is the case, it would most likely be, in the case of capital gains, most advantageous tax efficiency wise to flow through the assets to beneficiaries than to sell them and distribute cash. Normally an executor would not want that headache, especially with multiple beneficiaries. It is easier for an executor to monetize capital assets and the method I would prefer to do as an executor.
 

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Discussion Starter #10
I broke down and called the CRA. (and I plan on calling again to confirm with another agent what I found out). There is a deemed disposition of the asset upon transfer to the beneficiary.

So the estate will need to report the gains / losses from the date of death -> date of distribution. The beneficiary would use the value at the date of distribution as the book value of the asset.

Well that certainly complicates my tax filing for this year :|
 
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