How are in-kind distributions from an estate reported on a 1041?

[edrakin]

Client is the executor of a decedent's estate. There is a sizable brokerage account held in decedent's name, which became part of the estate. Had executor sold the securities in that account, there would be gain or loss based on the sale price and the date of death value. But what if beneficiary creates his own brokerage account, and executor requests the securities themselves be distributed in-kind to the beneficiary's own brokerage account? There is no realization with no sale, correct? And when the beneficiary goes to sell the securities in the future, he will calculate gain based on the date of death value rather than the value at the time the in-kind distribution occurs? 

Asked differently, does the tax preparer ignore in-kind distributions on the 1041, reporting only interest, dividends, etc. paid to the estate? Thank you! 

[sjrcpa]

The distribution will carry out income.

Beneficiary's basis in the stocks received will be date of death value.

No gain or loss on the distribution in kind unless the estate elects to pay tax on the unrealized gain ( in which case the beneficiary's basis becomes the value on the date of distribution).

[BobKamman]

I've never heard of an estate being able to pay tax on unrealized gain, but there's a first time for everything.  

[sjrcpa]

643(e)

[BobKamman]

I remember something about that.  Like, it's considered a sale to the beneficiary.  So the beneficiary gets a bonus on top of stepped-up basis.  I thought that was only applicable to specific bequests, but it looks like it can be elected if all property distributions during the year are treated that way.  

[sjrcpa]

I've only seen it used once.