Guide To Stock Inheritance

Guide To Stock Inheritance

Owning shares in a highly successful company is something millions of people aspire to achieve. Having a balanced portfolio of stocks helps investors protect and grow their wealth and receive cash dividends while they do so. 

As financial assets, stocks are also possible to be inherited, whether it is directly from a family member’s estate or as part of a trust that may come with certain conditions, such as barring the new holder from selling until a certain amount of time has passed. 

Prior owners may inherit anything from S&P 500 index fund shares to a portfolio of stocks from dozens of different companies. 

If the decedent has a will, they may include the beneficiaries of their holdings in the will, which is legally binding and guarantees that the beneficiary receives their share of the holdings. 

To avoid additional taxes and handle inheritances more smoothly, most place their equity holdings in a trust, which comes with certain tax advantages. 

If you are curious about how stock inheritances work, this Investfox guide can help. 

Stock Inheritance Steps

Stock inheritance is a multi-step process that involves a professional evaluation of the stocks being transferred, as well as the examination of the will (if there is one) and the distribution of the assets addressed in the will. 

In the cases where there is no formal will, an intestate succession identifies all dependents and the assets, including stocks, are transferred to them. 

Death Of The Stockholder

If the owner of the stocks dies before selling their shareholdings, their shares become a part of their will, or if there is no will, their estate, which is then transferred to their dependents, if they have any. 

Once the assets have been included in the estate, a professional executor or personal representative will conduct a thorough valuation of the holdings and distribute them accordingly to the successors. 

A valuation is required, as the decedent may also hold private equity investments, such as VC or startup investments and valuing the shares of such businesses is not as straightforward as that of publicly traded stocks. 

The Role Of The Executor

The executor is the party that is tasked with administering the decedent’s estate and passing it on to the successors. 

The executor will conduct an evaluation of the total assets included in the estate and if there is a will, administer who should receive what. 

The executor will also oversee the transition of the assets to their new holders and make sure no disputes arise, or if they arise, are promptly resolved. 

Payment Of Debt And Taxes

Before distributing the inherited stocks to beneficiaries, the executor must ensure that any outstanding debts and taxes owed by the decedent or the estate are paid off. 

This often includes income taxes, estate taxes, and other liabilities. Therefore, it is important to evaluate the net worth of the decedent to get a clearer picture of the value of their estate and what the successors will receive from said estate. 

Distribution To Beneficiaries

After settling debts and taxes, the executor distributes the remaining assets, including stocks, to the beneficiaries named in the will or, in the absence of a will, according to state laws. 

Each beneficiary receives their share of the stocks as specified. This is usually the part when any legal disputes arising from the estate between successors can be addressed and resolved. 

Tax Implications 

In many countries, including the United States, there may be tax implications associated with inheriting stocks.

These can include capital gains taxes if the stocks have appreciated in value, as well as potential estate taxes.

In the United States, the estate tax can vary between 18 to 40%, depending on the tax bracket. However, the estate tax generally only applies to assets that are worth more than $12.92 million. 

Other Considerations 

Depending on the will of the decedent, the process and method of transferring stocks can vary greatly. Some decedents may place restrictions on their estate and only allow the successors to access the assets at a certain date, age, status, etc. 

Furthermore, high net worth individuals may place their estates in a trust and have professionals manage it even after their passing - only transferring their assets to successors after a certain threshold has been reached. 

Key Takeaways From The Guide To Stock Inheritance

  • Stocks, much like any other asset, can be transferred and inherited in accordance with national laws
  • In many countries, stock inheritances are subject to estate taxes to avoid the accumulation of wealth in the hands of the few 
  • When the decedent dies, an executor will assess their estate and administer the transfer of the stocks and other assets to their new rightful owners 
  • In some cases, such as private investments, a professional stock evaluation may be necessary to determine the fair value of the assets being transferred

FAQs On The Guide To Stock Inheritance

Can you inherit stocks?

Yes, you can inherit or transfer stocks much like any other asset. Depending on the nature of the stocks and whether they are from a publicly traded company or a private one, a professional evaluation may be necessary to determine the dollar value of the assets being transferred. 

Is stock inheritance taxed?

Yes, in most jurisdictions stock inheritance is taxed. In the United States, estates worth more than $12.92 million are subject to estate tax, which can range from 18 to 40%, depending on the net worth of the decedent. 

What happens to stock when a shareholder dies?

When a shareholder dies, their stock holdings become part of their estate, which is then administered in accordance with their will (if any). In the absence of a will, the assets are transferred to any dependents of the shareholder.