What Happens to an Investors Shares upon the Holders Death


When a family member passes away, it is never a happy moment. It is sad and yet, it is a reality that we live with. However, when somebody passes away, life still carries on and their estate will need to be given to certain beneficiaries or his/her spouse. Let’s talk about that. What happens to a person’s shares when they pass away?

When a person passes away, the transfer of stock ownership will depend on the provisions made by the deceased before their passing. Most legal and financial experts recommend naming a transfer-on-death beneficiary in order to avoid the probate process. 

That is the best answer that we could give you in one paragraph but there is a lot more to it than that. In this article, we are going to talk about what exactly happens to a person’s shares when they pass away whether they had or will or not. We will also discuss the probate process and also talk a little bit about the transfer-on-death security act. So, for everything you need to know, keep reading.

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This Is What Happens To Shares When A Person Passes Away

I assume that there are one of three reasons why you would be searching for the answer to this question. You could be trying to figure out what to do with your shares when you pass away, or someone you know has recently passed away and you want to know what’s going to happen to their investments, or, you are just curious about this. 

Regardless of why you are asking the question, In this section, we are going to answer it as specifically as possible. So, let’s get into it.

Although it varies state-by-state, generally, if a person passes away and is married then their spouse will get sole ownership of all shares. It is important to check the laws of your state so that you have a better understanding of your situation. 

If the person who passed away was not married or in some cases, in a civil relationship, has a will, then all shares and investments will go to the beneficiaries that the deceased has named in the will.

Let’s take a look at these scenarios a little closer…

If The Person Had A Will | If Provisions Were Established

Again, this could vary as per what state you are in but generally, if the person had a will but they were married then the spouse will get ownership of the shares regardless of what the wall says. 

If you are in a state where the spouse does not automatically inherit an estate, if a spouse or in some cases, a domestic partner, was excluded from a will, there is a legal process where they can object to the will and in most cases, will inherit at least 50% of the deceased’s estate.

If the deceased does have a will and was not married then they will stipulate who they want their assets to go to and they can even break it down into percentages. Here is a short example of that. For this, we are going to assume that the deceased named two beneficiaries in his or her will.

  • Each child gets 50% of each stock.
  • One Child gets 40% and the other gets 60%.
  • Specific stocks can be named and given to a specific beneficiary.

Those were just some examples.

If The Person Had No Will | No Provisions Were Established

We will start the section off in the same way as we did with the previous one and that is by saying that if the person was married then they don’t need a will because their assets will transfer to their spouse.

If there was no will or even in some cases, if the will is contested by the firm then you will go into a probate process. We will discuss what the probate process is in the next section. If you are curious to find out how to transfer the stocks from a deceased person then you will find that further down.

What Is The Probate Process?

When a person draws up a will, they often nominate an executor of the will and if the will does not go through the probate process, the executor will allocate all assets according to the will right after paying off all of the deceased persons’ liabilities such as loans.

In a case where there was no will or if a will is being contested then the deceased’s assets will start to go through a probate process where it is handled by the courts. At the end of the day, the court allocates an executor of the deceased assets and they will decide, based on the court’s guidelines, how to allocate the shares.

Once the courts have decided who is entitled to the deceased estate, they will send a letter to the executor and the executor will notify the transfer agent, The transfer agent will then notify the firm who currently holds the stocks.

We made this process seem very simple and while it technically is, it can take a very long time and can often turn into a lengthy legal process and a battle between siblings. So, it is best to avoid this.

We may have already mentioned that most brokerage firms will encourage an investor to have these provisions set out clearly so that they can avoid the probate process.

How Do You Start The Transfer Process?

The transfer process must be done by the transfer agent and I understand that if you are not familiar with all of this, you might not know where to start. Don’t worry, we have the answer for you in the section. Not everything may apply to you as it may be done for you but it is always good to understand the process.

The transfer agent will need to be notified of the death of the shareholder. If you don’t know who the transfer agent is, you can simply contact a brokerage firm with whom the shares are held and ask them for this information. It is important to note that the executor of a will would normally do all of this work.

Once the transfer agent has been contacted, you will need to prove that this death has occurred. This can obviously be done with death certificates and any documents that indicate that the person has passed away.

The transfer agent will then need proof that you are the beneficiary and he/she should give you a re-registration form for you to fill out. Once that is done, they will initiate the transfer process. The brokerage firm, the executor, and the transfer agent will walk you through all the steps necessary.

What Is The Uniform Transfer On Death Security Registration Act?

The uniform transfer-on-death security registration act is a bill that was passed that allows an investor to name his beneficiaries in a will for when he/she passes away.

This gives the investor peace of mind that when he passes away his investment portfolio or the shares that he owns will not go back to the brokerage firm, instead, it will go to his spouse, his children, or whoever he names as his beneficiaries.

That was just a brief summary of this act. There is a lot more to it but that is mostly all technical stuff that lawyers need to know.

Conclusion

As we mentioned, when someone passes away, it is an unpleasant time. It can be made even more unpleasant when their estate is being decided. The goal of this article was to give you as much information as possible. Hopefully it will make a sad time a little bit less stressful.

Chris Race

I am an accountant from the U.K. specialising in Management Accounting, Personal & Business Tax, Financial Analysis, and Wealth Management. My passion for learning is what lead me to creating this blog. Stock market investing has always been a interest of mine, and since I was 18 years old... This interest has become a source of income for me and my family.

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