What to ask about Inherited Stock Held in Trust?

January 23, 2024 Katherine Fox

Posted on January 23, 2024 by Katherine Fox.

What to ask about Inherited Stock Held in Trust?

Inheriting stock held in trust presents an opportunity to add to your income and may enable you to experience financial freedom and live a life that you thought was beyond your dreams.

But if you aren’t able to understand the size and holdings of your trust, haven’t been told how much you are guaranteed to receive in income from the trust each year and how much additional money you are allowed to withdraw, or feel like your trustee has become a financial babysitter, it can be hard to realize financial freedom through inherited stock held in trust.

Remember that inheriting stock from a trust is different than inheriting stock held in trust.

If you inherit stock from a trust it may or may not continue to be held in trust for your benefit. If you inherit stock held in trust you will have a trustee who is bound by a fiduciary duty and the terms of the trust document to manage inherited stock and give you distributions that comply with the trust terms as well as all applicable Federal and State laws.

1.wWho is the trustee of my trust holding inherited stock?

If you inherited stock held in an irrevocable trust for your benefit you need to identify the trustee of your trust. The trustee will pay an essential role in managing your trust. Their duties include:

Safeguarding inherited stock held in trust
Finding an investment manager for inherited stock held in trust
Ensuring that beneficiaries adhere to all trust terms
Managing distributions of inherited stock from a trust

In some cases, the trustee of your trust may be a family member or close friend who is easy to communicate with and trusts your judgment.

In other cases, the trustee of your trust may be a more distant relation or a corporate trustee who won’t take you at your word and acts as a financial parent.

In either case, the trustee should be able to help you understand more details about your inherited stock held in trust, including the stocks inherited, how inherited stocks will be managed moving forward, and what distributions or income you are entitled to receive from inherited stock.

2. Can you provide me with a copy of the trust document?

After learning you are inheriting stock held in trust and opening communication with your trustee, the next step beneficiaries should take is to ask their trustee for a copy of the trust document.

Reviewing the trust document will allow you to answer other key questions:

Am I entitled to income distributions from my inherited stock held in trust?
Am I entitled to principal distributions from my inherited stock held in trust?
Who are the other trust beneficiaries?
What power do trust beneficiaries have?
Are there any requirements for me to be able to continue receiving trust funds?
Will I receive lump-sum trust payouts on any set schedule?

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What to ask about Inherited Stock Held in Trust?

3. Are my inherited stock positions held in trust generating income? Will I receive that income?

Inherited stock held in trust may generate dividends. Dividends are distributions of earnings, often quarterly, by a company to its shareholders in the form of cash or stock reinvestment.

If your trust is generating income in the form of dividends, you may be entitled to receive that income depending on the terms of the trust document.

Your trust document may prescribe that you are to receive all income from your inherited stock held in trust. In that case, you will want to confirm the amount of income that is expected to be generated annually so you can factor that income into your annual financial plan. Generally, this income is paid out quarterly, although you may be able to work out an alternate arrangement with your trustee.

4. Will I pay taxes on inherited stock held in a trust?

Trusts are responsible for paying their own taxes on income or realized capital gains generated from inherited stock held in trust.

Any income from inherited stock positions distributed out to you as a trust beneficiary will be taxable as ordinary income on your tax return. This is known as distributable net income (DNI). If you are receiving income distributions from a trust, you should work with a CPA to ensure that you make quarterly tax payments to avoid an interest penalty from the IRS.

If your trust document allows for the distribution of inherited stock, you will be responsible for paying income tax on the value of the stock distributed. If this stock appreciates, you will also be responsible for paying capital gains tax if/when you sell the stock.

Principal distributions given to you as a trust beneficiary will generally not be taxable.

5. Who is managing inherited stock positions held in trust for my benefit?

If you inherit stock held in trust for your benefit you will want to know how it is being managed.

Ask your trustee who is managing inherited stock positions held in trust. It could be the trustee themselves or a separate investment advisor that the trustee has hired to oversee trust portfolio management.

If you are working with a corporate trustee, often it will be a different arm of the same corporation that is responsible for managing the investments of the trust.

6. What Investment Policy Statement is being used to manage inherited stock positions held in trust?

When you know who is managing your inherited stock positions held in trust you should ask them what Investment Policy Statement is being used to guide their management.

An Investment Policy Statement is a document that a trust’s trustee and investment manager create to outline the investment objective of a trust and guidelines for the management of the trust’s assets.

You can ask to review your trust’s Investment Policy Statement to educate yourself about how the trust will be invested and managed as long as it is in existence.

7. What inherited stock is held within the trust?

After understanding how inherited stock positions held in trust are being managed via the trust’s Investment Policy Statement you can ask your trustee or the trust’s investment manager what inherited stock positions are held in the trust and how the portfolio may change over time.

Because trustees have a fiduciary obligation to manage and steward trust assets, they tend to be conservative with trust investments. If, for example, you inherited a trust funded with a concentrated stock position your trustee may be actively working to diversify that position to reflect the trust’s risk tolerance, regardless of the potential tax considerations.

If you have a preference for how inherited stock positions held in trust are managed, you can share that preference with the trustee or the trust’s investment manager. They are not required to take your suggestions. Depending on the language in the trust and the number of other beneficiaries, they may be willing to work with you to help build a portfolio that reflects your personal preferences.

8. Can I appoint my own financial advisor to manage inherited stock positions held in trust?

If you are unhappy with your trustee’s choice for investment management, you should ask if you are able to appoint your own financial advisor to manage inherited stock positions held in trust.

This question may be better asked to your lawyer, rather than to your trustee.

Your trustee may say “no” because they are part of a trust company that also manages the trust’s investments. However, many beneficiaries have the right to appoint a new trustee. If this is the case, you could choose an independent corporate trustee who will allow you to select your own investment manager for inherited stock positions held in trust.

9. How can I support my financial and life goals using stock inherited through a trust?

If you are dealing with stock inherited through a trust, you may want to move on from the technical aspects and considerations of taxes, trustees, and investment management and towards an exploration of how your inheritance can support your vision for the future.

Inheriting stock held in trust presents you with an opportunity to add to your income and may provide the opportunity to experience financial freedom and live a life you thought was beyond your dreams.

Sunnybranch works with inheritors who received inherited stock and other positions held in trust to understand their inheritance, advocate for themselves and their families, and build a positive, informed relationship to inherited wealth held in trust.

10. No one is answering my questions - who can help me get the answers I need about my inherited stock held in trust?

Too often I see beneficiaries stonewalled by trustees or trust investment managers who refuse to give them information to which they are legally entitled.

It feels impossible when the people who are supposed to be stewarding wealth for your benefit refuse to give you information that would allow you to plan for your future and understand your rights as a trust beneficiary.

If this is your situation, please reach out. Sunnybranch specializes in working with trust beneficiaries who need help getting the information they need from their trustee and other trust advisors. Together, we assemble a team of professionals who are on your side and can fight to give you agency and power over your inherited stock held in trust.

Let’s take the next step together

Understanding what to do with inherited stock positions held in trust is not easy. Inheritors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can download the 20 Terms Inheritors Need to Know or reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you build a plan to manage inherited stock held in trust.