When Someone Passes Away, Who Sells the Stocks? The Truth About U.S. Estate Tax That 99% of People Misunderstand

In the United States, when a U.S. tax resident who owns stocks passes away, the stocks first become part of the estate and are then inherited by the heirs. In principle, estate tax is paid by the estate, not by heirs who first receive the stocks and then pay the tax themselves.

The process is roughly as follows:

1. Calculate the value of the estate on the date of death.

   For example:

   • QQQ stock: USD 5 million
   • Cash: USD 1 million
   • Real estate: USD 4 million

   Total estate: USD 10 million.

2. The executor files the estate tax return.

   If the estate exceeds the federal estate tax exemption, the executor must file an estate tax return with the Internal Revenue Service.

3. The estate itself pays the tax.

   If the estate contains:

   • Cash: pay directly
   • Stocks: sell part of the stocks to pay
   • Real estate: sell property to pay

So when people say, "The heir first inherits the stocks, then sells the stocks to pay estate tax," in practice it is usually: "The executor first sells part of the stocks to pay estate tax, and only then distributes the remainder to the heirs."

However, if the estate has already been distributed and the tax has not been fully paid, the IRS may still pursue the beneficiaries.

Current Situation for U.S. Citizens

For U.S. citizens, the federal estate tax exemption in 2026 is still roughly around USD 14 million per person. With proper planning, a married couple can exceed USD 28 million.

Therefore:

• Estate of USD 10 million: federal estate tax is usually zero
• Estate of USD 20 million: the excess portion may be taxable

Many American families do not need to pay federal estate tax at all.

The Biggest Benefit of Stock Inheritance: Step-Up Basis

Assume:

• The father bought QQQ with a cost basis of USD 100,000
• At the time of death, the market value is USD 1 million

After the heir receives it:

• The cost basis directly becomes USD 1 million
• If the heir immediately sells for USD 1 million, capital gains tax is zero

This is a very important tax advantage in U.S. stock inheritance.

What Non-U.S. Persons Must Pay Attention To

If a Taiwan resident, China resident, Hong Kong resident, or another non-U.S. tax resident directly holds U.S. stocks, the federal estate tax exemption is only USD 60,000.

For example:

• Holding QQQ worth USD 1 million
• Passing away
• There may be hundreds of thousands of dollars in estate tax

This is why many overseas investors plan through:

• Ireland-domiciled ETFs
• Insurance structures
• Family trusts

If you, as a U.S. citizen, leave QQQ to your children after passing away, the key issue is usually not estate tax. It is how to help your children smoothly receive the benefit of the step-up basis. That is often more valuable than the estate tax issue itself.

Where Does the Executor Usually Come From?

In the United States, an executor usually comes from one of the following sources:

1. A person named in the will, which is the most common case.

   If you have a will, it may name:

   • Spouse
   • Adult child
   • Relative or friend
   • Lawyer
   • Accountant

   For example: "I appoint my eldest son James as executor of my estate."

   After death, the court approves the appointment.

2. No will, also called intestate.

   If there is no will, the court appoints an administrator of the estate.

   The usual priority order is:

   1. Spouse
   2. Adult children
   3. Parents
   4. Siblings
   5. Other relatives

   Although the title is administrator, the work is almost the same as that of an executor.

3. Living trust.

   Many American families use a Revocable Living Trust. If most assets have already been placed into the Living Trust:

   • An executor is not needed to handle most assets
   • A successor trustee takes over

   For example:

   • You are the first trustee
   • Your wife Donna is the second trustee
   • Your eldest son James is the third trustee

   After you pass away, the successor trustee directly manages the assets.

What the Executor Actually Does

The work includes:

• Obtaining death certificates
• Notifying banks and brokerages
• Handling real estate
• Filing the final income tax return
• Filing estate tax returns, if needed
• Paying debts
• Distributing the estate to heirs

For example, if your Schwab account holds QQQ, SGOV, and other assets, the executor or trustee will contact Charles Schwab to handle the inheritance process.

What You Should Confirm Now

If you have:

• A Schwab account
• IRA
• Roth IRA
• Regular brokerage account
• Real estate

It is recommended that you confirm:

1. Whether you already have a will
2. Whether you have established a Living Trust
3. Whether each account has designated beneficiaries
4. Who will serve as executor or successor trustee

If an account already names a beneficiary, such as an IRA or Roth IRA, it can usually be inherited directly by the beneficiary and may not need to go through probate. This is often more important than the estate tax question.