When It Comes to Stocks, Stop the Loss
An executor or personal representative of an estate with significant stocks or other marketable securities should always consider entering a stop-loss order. That is a standing order with your broker to sell a security if the price drops to a certain level. A trailing stop-loss order is one that raises that sale price as the value increases so that the “stop-loss” figure is a set constant below the “highest value” attained. For more details or options, talk to your broker, not your lawyer.
Such an order is, in essence, insurance against cataclysmic drops in value, against which is balanced the possible loss of appreciation in value after the stop-loss order triggers a sale, plus in some cases a negative tax effect of an unplanned liquidation. However, on balance, nearly all the risk for a fiduciary is on the side of the possible loss from starting value, not on the side of loss of unrealized profit if sold prematurely. It is basic human nature to be unhappy with an executor or trustee who sells to protect the assets, only to see the value then climb, but to be totally livid if he or she lets the original value plummet either out of inattention or a belief that “it will bounce back.”
This anger on the part of heirs can lead to legal liability. The exposure to the executor can be high. The legal standard is “prudence,” and the first rule of prudent investing is to preserve the capital. A stop-loss order can do that.