What To Do When Someone Dies: Stocks and Investments
One of the types of financial property that commonly passes from one person to another when a death occurs are stocks, bonds, and other kinds of money market investments. The good news about this kind of property is that it is almost always done by the type of individual who put time and effort into financial planning, estate planning, and other long-term objectives. This means there is a good likelihood a will is in place and steps have been taken to smooth the way for beneficiaries to gain control.
However, because death can be so sudden and unexpected, this isn’t always the case. As in any situation in which the deceased leaves behind an estate that must go through probate, there are certain steps required before all the funds can be released. If your loved one had a stock portfolio or worked with a financial advisor to create long-term investment plans, you may want to be sure of your rights and responsibilities regarding what to do about stocks and investments when a loved one dies.
Stock and Bond Basics
Registered stocks and bonds are tied to a specific owner. To make it easier for companies to keep track of who their stockholders are, registered stocks require that you make a record of your name and address that allows the company to easily get hold of you. Bearer bonds are similar, but less stringent in their requirements. Instead of belonging to a specific person, they contain the words “bearer” or “holder,” and can be sold or transferred with minimal company or government interference.
Part of our ongoing series:
In today’s business and financial world, almost all stocks and bonds are registered, as they are more secure and reduce the responsibility of the bearer. However, while this makes business go a little bit more smoothly, it can create hurdles after the death of a loved one. That’s because in order to get any money out of the stocks, or to simply transfer ownership to you, it is necessary to first show proof of death and your right to the deeds.
Any bonds or stocks sold after 1982 will be registered, since that is when the United States made it a law for them to be drafted that way. However, if the deceased has held on to documents that are older than this (and it does occasionally happen), you can avoid the registration issue altogether, though the money will still be subject to inheritance taxes.
How to Transfer a Registered Stock or Bond
In most cases, there will be a transfer agent who can work with the Executor of the Estate or with you to file all the necessary paperwork to transfer the stocks or bonds. (The transfer agent is a business or individual authorized by a corporation to transfer stocks between holders.) This transfer must be done before the stocks can become your legal possession as determined by the will, and you may not be able to get instant access to the stocks or bonds until the estate goes through probate.
Exceptions to the transfer and probate do exist, but it requires taking a few steps prior to the death of your loved one.
Exception #1: If you are the spouse of the deceased, the certificates can be listed as joint property, much as a joint bank account or mortgage is listed. This allows the surviving spouse to simply provide a death certificate in order to retain sole ownership of the stock or bond.
Exception #2: In almost all states (Louisiana and Texas are exceptions), you are allowed to name a beneficiary to your stocks, bonds, or brokerage account in the event of your death. This way, the transfer is already halfway complete, and all that will be needed is a proof of death (for the deceased) and a proof of identity (for the beneficiary). One of the best things about this is that you can avoid probate this way. However, it should be noted that some brokers might not provide this service; if it is important to you, work with a financial firm that cooperates with the transfer-on-death stock option.
Other Stock and Bond Considerations
In the event that the deceased has an estate entering probate (that period of inheritance limbo in which all the financial arrangements are made by the Executor of the Estate and the deceased’s creditors), it may not be necessary to transfer the stocks at all, as they may be used to cover estate expenses. After all, unless you are a direct beneficiary or spouse, any money left behind is not yours until after creditors have been paid.
The good news is that most brokerage firms and financial advisors have experience and training in transferring stocks or bonds after a death. And because stocks can belong to an individual for years or even decades, the deceased may have a very good relationship with the broker, who will be accommodating in your time of need.
Our final post in this series will be released on Thursday February 3, 2011 and will be about what to do with a loved one’s life insurance.
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By Amy Johnson