In-kind distribution is made in satisfaction of the required charitable distribution, the amount paid, credited, or required to be distributed shall be considered as an amount realized by the trust form the sale or other disposition of property. Therefore, the trust will recognize short-term or long-term capital gain, as applicable, in an amount equal to the excess of the fair market value of the property transferred over the cost basis of that property.
In a complete liquidation of a partner's interest in a partnership, the in-kind property distributed will have a basis equal to the adjusted basis of the partner's partnership interest reduced by any money received in the same distribution. Generally, in a liquidating distribution, the basis for a partnership interest is first reduced by the amount of money received, then reduced by the partnership's basis for any unrealized receivables and inventory received with any remainings basis for the partnership interest allocated to other property received in proportion to their adjusted bases to the partnership.
Valuation of distribution in-kind
Five main distribution in-kind be distinguished:
- Assets shall be distributed in kind unless
- A general power of sale in conferred
- A contrary intention is indicated by the will or trust
- Disposition is made otherwise under the provisions of this code
- Any pecuniary devise, family allowance, or other pecuniary share of the estate or trust may be satisfied in kind if:
- The person entitled to payment has not demanded cash
- The property is distributed at fair market value as of its distribution date
- No residuary devisee has requested that the asset remain a part of the residuary estate
- When not practicable to distribute undivided interests in a residuary asset, the asset may be sold
- When the fiduciary under a will or trust is required, or has an option, to satisfy a pecuniary devise or transfer in trust do or for the benefit of the surviving spouse, with an in-kind distribution, at values as finally determined for federal estate tax purposes, the fiduciary shall, unless the governing instrument otherwise provides, satisfy the devise or transfer in trust by distribution of assets, including cash, fairly representative of the appreciated or depreciated value of all property available for that distribution, taking into consideration any gains and losses realized from a prior sale of any property not devised specifically, generally, or demonstratively
- A personal representative or a trustee is authorized to distribute any distributable assets, non-pro rata among the beneficiaries subject to the fiduciary's duty of impartiality.
Evidence of distribution in kind
The personal representative is required to execute whatever instrument is necessary in order to vest title in the distributee. If the distributee is already in possession of the property, the appropriate instrument may be a release. If the property, the appropriate instrument may be a release. If the property to be transferred is real estate, the appropriate instrument is a personal representative's deed of distribution. The release contemplated by this section would be used in situations where, the personal representative leaves certain assets of decedent's estate in the possession of the person presumptively entitled. Such a release would be used as evidence that the personal representative had determined that the estate would not need to disturb the possession of an heir or devisee for purposes of administration. It would seem that the release would be appropriate only where title to the particular asset was not recorded. In the latter situation, some documentation of transfer from the personal representative to the distributee would probably be required.
- J.A. Soled 2002, p.97
- P.R. Delaney, O.R. Whittington 2009, p.555
- G.M. Nickel 2010, p.121
- R.A. Stein 2018, p.525
- Delaney P.R., Whittington O.R., (2009), Wiley CPA Exam Review, John Wiley & Sons, New Jersey.
- Nickel G.M., (2010), Probate and Settle an Estate in Florida, Sourcebooks, Naperville.
- Soled J.A., (2002), Estate Planning Strategies: A Lawyer's Guide to Retirement and Lifetime Planning, American Bar Association, Chicago.
- Stein R.A., (2018), Stein on Probate, LexisNexis, Minnesota.
Author: Michał Duch