Creating and updating your estate plan is vital in financial planning. No matter where you are in that process, you may be wondering how to transfer stock ownership after death. If you designate a transfer-on-death (TOD) beneficiary, the process can actually be pretty straightforward. Your shares will pass directly to the person you've named and won't have to go through the probate process.
Read on to learn how stock ownership is transferred when someone dies and what you should do to ensure your loved ones won't encounter any hurdles involving your brokerage account when you die.
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How do you transfer stock ownership after death?
The process for transferring stock ownership after death varies based on whether the assets were jointly owned and whether a TOD beneficiary was named.
If the stocks were held in a joint account
Shares in most types of jointly owned brokerage accounts will automatically transfer to the surviving owner if the co-owner dies. The process you need to follow if you're the surviving owner will vary somewhat by brokerage firm, so your first step is to contact the company. You'll probably need to fill out a form and provide a copy of the death certificate.
The brokerage company will then register the account in the survivor's name. Your shares can pass directly to the co-owner without going through probate.
If you named a TOD beneficiary
Most states have adopted the Uniform Transfer-on-Death Security Registration Act, which allows investors to designate a TOD beneficiary for any stocks they own. This enables the beneficiary to receive those stocks automatically once the holder dies. The stocks do not have to be listed in the deceased person's will, meaning they can be transferred without going through probate.
If a TOD beneficiary has been named, then after the stockholder dies, his or her securities are immediately transferred to the designed party. The executor or administrator of the original owner's estate does not need to take any steps to facilitate the transfer.
The only thing a TOD beneficiary needs to do is re-register the stocks in question in his or her name, which generally involves sending a copy of the previous holder's death certificate and a form of proper identification to a transfer agent (a person in charge of maintaining records of stock ownership), who can complete the transfer.
It's often recommended that you designate both a primary and contingent beneficiary for stocks and other assets that pass through beneficiary designation. If the primary beneficiary has died or is unable to inherit the property, the asset passes to the contingent beneficiary.
Probate: If there's no joint account owner or beneficiary
Probate is a legal process for settling a deceased person's estate. If a person who's the sole owner of stocks passes away without naming a TOD beneficiary, the stocks will have to go through probate. When a person leaves stocks behind, a probate court must first determine who gets the shares and then direct the executor of the estate to transfer ownership accordingly.
To facilitate a transfer, the executor will need a copy of the decedent's will or a letter from the probate court confirming that the beneficiary in question is indeed the person entitled to receive the shares. The executor must then send these documents to a transfer agent, who can complete the transfer of ownership.
Making sure things are taken care of
It's essential to name a beneficiary for your brokerage account and other accounts, like 401(k)s and individual retirement accounts (IRAs). That way, your loved ones can take ownership of the money you've invested without having to wait on a probate court.
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Bear in mind, though, that beneficiary designations supersede the instructions in your will. So, if you've been divorced for a decade and forgot to remove your ex-spouse as the beneficiary, they would still have a claim to the account. That's why reviewing beneficiary designations after a major life change, like a marriage or divorce, is essential.
Also, be sure to notify your loved ones whom you've named as beneficiaries. You'll need to give them the name of the brokerage firm so they can notify the company and avoid delays in transferring ownership.
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