How Distribution in Kind Works
When an estate is settled, not everything needs to be sold for cash. The law actually prefers the opposite. Unless the will says otherwise, assets should be given out in their current form when possible.
This can include real estate, vehicles, and investment accounts.
Unless a contrary intention is indicated by the will, the distributable assets of a decedent's estate shall be distributed in kind to the extent possible.
A.R.S. § 14-3906(A)A specific devisee receives exactly what was named in the will. For example, if someone was left the family cabin, they get the cabin. Cash gifts can also be filled with property instead of dollars.
This works as long as three conditions are met. The beneficiary has not demanded cash. The property is valued at fair market value on the distribution date. A residuary devisee has not asked for the asset to stay in the residuary estate.
Valuation and the Right to Object
Publicly traded securities use the last sale price from the business day before distribution. Debts owed to the estate by solvent debtors are valued at the amount due plus accrued interest. Other assets use a valuation from within thirty days of distribution.
The personal representative may hire qualified appraisers. Once probable charges are known, the representative can send a distribution proposal to all beneficiaries. Any beneficiary who does not object in writing within thirty days loses the right to challenge what they receive.
Tax Considerations for In-Kind Distributions
Receiving assets instead of cash can affect income tax and capital gains. When property comes from an estate or trust, the beneficiary typically gets a stepped-up basis. This can reduce gains when the asset is later sold.
However, ordinary income items like retirement account payouts may still be taxable. Knowing the tax impact of in-kind distribution helps beneficiaries decide whether to accept property or request cash instead.