Download Brokerage Accounts, Transferring Stocks, and Handling Bonds

Tenth Annual Probate Administration
November 13, 2014
Chapter 6
11:00-11:15am
Brokerage Accounts, Transferring Stocks
Sarah L. Moen, Moen Law Offices, P.S.
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1. Brokerage Accounts; Transferring Stocks and Bonds
Brokerage Accounts; Transferring Stocks and Bonds
Sarah L. Moen
MOEN LAW OFFICES, P.S.
It is not uncommon for a decedent to hold an interest in brokerage accounts, stock
certificates, or government bonds at death. If these investments are a part of the probate estate,
the PR has a duty to marshal these investments and either liquidate or distribute them prior to
closing the Estate.
A. How Is the Investment Titled? The PR needs to determine whether the investment is subject
to probate. The PR should ascertain whether the investment is held solely by the decedent,
subject to a joint tenancy, or subject to a payable-on-death (“POD”) designation.
If the investment is held solely by the decedent or as a joint tenant without survivorship
rights, the PR has a duty to marshal the investment. If the investment is held as a joint tenant
with right of survivorship or subject to a POD designation, then the investment is a nonprobate asset and is not a part of the probate estate. Although the PR does not have a duty to
marshal non-probate investments, the PR should still be aware of the value of the investment
for any federal and state estate tax apportionment under RCW 83.110A.
Practice Tip: The best evidence of how an investment is held is to request a copy of the
signature card/application form and any amendments thereto from the financial institution.
Do not rely upon the names and addresses identified on the monthly statements or upon
representations made by family and friends.
B. Marshaling the Investment. The investment will need to be re-titled into the name of the PR
on behalf of the Estate. This must be done regardless of whether the PR intends to distribute
or liquidate the investment, because the Estate is considered to be a separate taxable entity
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for federal tax reporting purposes. Any tax reporting attributable to the investment after
death should be reported by the Estate. To do this, the PR will need to apply to the Internal
Revenue Service for a tax identification number (“TIN” or “EIN”) for the Estate.
1. Brokerage Account. After the PR has verified that the investment is a probate asset, the
PR should contact the brokerage firm to advise of the death, his appointment as PR, and
to request the necessary forms to establish a new Estate account. These forms are often
available for download on the brokerage firm’s website. Some brokerage firms have
additional requirements such as a copy of the Order appointing the PR (sometimes
certified), a copy of the death certificate (sometimes certified), a copy of the Will, or
other internal forms provided by the firm.
The PR may then submit the completed application to the brokerage firm along with a
copy of his Letters Testamentary or of Administration and a letter instructing the broker
to transfer the investment from the decedent’s account to the new Estate account and to
close the decedent’s account.
Practice Tip: It is preferable to establish the Estate account at the brokerage firm where
the decedent held his account. It keeps the paperwork and the number of brokerage
persons involved in the transfer to a minimum. There is also less of a chance of delay or
error with transfers “in house.” The same is true if a PR is distributing the investments to
the heirs.
It is much more convenient if the heirs establish accounts at the same
brokerage firm to complete the transfer.
2. Stock Issued in Certificate Form. Sometimes, a decedent will hold stock in certificate
form or in his own name (as opposed to a “street name” held in the name of a brokerage
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on behalf of a customer). The Author has found that holding stock in certificate form is
more prevalent with the older generation. The Author has also found that the older
generation is more inclined to purchase stock in certificate form for their grandchildren to
be held jointly with the grandparent or with the grandparent as a custodian.
To marshal this type of investment, the PR will need to either submit the original
certificate for re-titling into the PR’s name on behalf of the Estate or, if the certificate has
been lost, to issue a replacement certificate. This step, although tedious, is required even
if the PR intends to liquidate the investment immediately. The PR should contact a stock
transfer agent to begin the process. Some of the bigger stock transfer agents include
Computershare, BNY Mellon Shareowner Service, American Stock Transfer & Trust
Company, and Wells Fargo Shareowner Services. The forms necessary to make the
transfer from the decedent to the PR are usually available on the company’s website.
a. Medallion Signature Guarantee Program. Stock transfer agents will require that the
documents being submitted (the original stock certificate and/or the stock transfer
form) bear a Medallion Signature Guarantee from a financial institution such as a
bank, credit union, or brokerage firm that participates in the Medallion Signature
Guarantee Program. A Medallion Signature Guarantee is a guarantee by the financial
institution that the PR’s signature is genuine, that the PR has the legal capacity to
sign, that the PR is the appropriate person to endorse the security, and that the
guaranteeing financial institution will accept liability for any forgery. This minimizes
the liability to the stock transfer agent, but greatly increases the risk to the financial
institution issuing the guarantee.
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In order for a financial institution to participate in the Medallion Signature
Guarantee Program, they must obtain a surety bond. The surety limits determines the
value of securities that the financial institution may guarantee.
The Signature
Medallion Guarantee stamp issued to a financial institution will have a different alpha
prefix corresponding to the surety limits. Presently, those alpha prefixes and limits
are as follows:
Alpha Prefix
Surety Limit
A
$1,000,000
B
$750,000
C
$500,000
D
$250,000
E
$100,000
F (issued to Credit Unions)
$100,000/transaction
X
$2,000,000
Y
$5,000,000
Z
$10,000,000
Because the potential for liability is high, each financial institution has its own
rules and requirements for issuing the guarantee.
Some common requirements
include that the decedent have held an account with the institution, that the PR holds a
current account with the institution, that the PR provide the most current statement for
the investment, that the PR provide certified or exemplified copies of court
documents, or that the PR pay a fee for the service.
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Practice Tip: Call the financial institution ahead of time to verify that they participate in
the Medallion Signature Guarantee Program and, if so, to schedule an appointment. Most
financial institutions have a limited amount of employees who are able to issue the
guaranty.
The Author has had increasing difficulty with obtaining a Medallion Signature
Guarantee as a number of banks in the downtown Seattle area are no longer participating
in the program or have delegated these services exclusively to their brokerage affiliates.
3. U.S. Savings Bonds. U.S. Savings Bonds are more likely to be held as JTWROS or be
subject to a POD designation and thus, are non-probate assets. However, in the event that
the bond is subject to probate, the PR may either redeem the bond and distribute the
proceeds to the Estate or reissue the bond in the name of a third person (heir).
Documents that need to be submitted to the U.S. Treasury include the original bond, if
available, Form PD F 5446 (available on the U.S. Treasury’s website), a certified copy of
the death certificate, and a certified copy of the Letters Testamentary or of
Administration issued within the last 12 months. If the PR is requesting that the bonds be
reissued in the name of a third person, then that person much complete Form PD F 4000
for submission with the other documents.
Like stock certificate transfers, the PR will need to obtain a Medallion Signature
Guarantee on the documents. If the PR has the original bond, the PR should wait to
endorse the back of the bond until he is in the presence of the person issuing the
Medallion Signature Guarantee.
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C. Understanding the Risks: Should the PR Distribute or Liquidate the Assets? The PR is
exposed to greater personal liability when the Estate holds investments. The risks include
losses sustained during market fluctuations or, if the PR decides to liquidate, in the form of
attacks on the timing of or the costs of the sale. Examples of potential attacks include the
amount of brokerage fees, PR fees, and/or legal fees incurred in the transaction, the amount
of capital gain taxes or income taxes generated, the amount of loss sustained by the
investment, etc.
Practice Tip: The PR should retain professionals such as a broker and an accountant to
provide advice in making a determination as to whether to distribute or liquidate an
investment. The PR should also consider consulting with the heirs of the Estate on their
wishes as to whether they prefer to receive their inheritance in kind or in cash. When in
doubt, the PR should seek a Court Order to authorize or confirm his actions.
1. FDIC Coverage.
Holding cash deposits is usually safer than holding brokerage
investments. The disadvantage is that cash deposits have very low returns. At the
present time, the return on a $250,000 short-term CD is approximately 0.10%. However,
some professional fiduciaries prefer cash deposits because the deposit is likely insured by
the Federal Deposit Insurance Corporation (“FDIC”).
The FDIC is an independent
agency created by The Banking Act of 1933 and funded by premiums paid by member
financial institutions. It provides deposit insurance to a customer up to $250,000 per
FDIC-defined ownership category.
For large cash holdings, a PR may maximize FDIC coverage by depositing the funds
with a financial institution participating in the Certificate of Deposit Account Registry
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Service (CDARS) or with a brokerage firm offering brokerage CDs. These programs are
similar in that the PR deposits all funds with a single financial institution.
That
institution then purchases CDs from various banks nationwide. Because each CD is
purchased from different financial institutions for less than $250,000, each investment
receives full FDIC coverage. The advantages of the CDARS program is that it allows the
PR to delegate the administration of multiple banks and CDs to the depositing institution
and provides for a single monthly bank statement from the depositing institution that
identifies all of the CDs held in the various banks. The disadvantages include the
administrative fees charged by the depositing institution and the current low rates being
earned by short-term CDs.
For example, the current APY for a six-month CD is
approximately 0.15%.
2. SIPC Coverage. Holding investments in a brokerage account may yield a higher return
and, as such, is attractive to heirs who may want to maximize their inheritance during the
probate administration. This poses a risk to the PR, especially if the investment is
volatile. Unlike a cash deposit, the FDIC does not insure investments.
However, the investment may be insured by the Securities Investor Protection
Corporation (“SIPC”).
The SIPC is a non-profit corporation mandated under the
Securities Investment Protection Act of 1970 and funded by member brokerage
institutions. The SIPC insures customers in the event that a brokerage fails financially. It
does not insure customers against market losses. Hence, SIPC coverage may not be
comforting as the PR remains exposed to liability for market losses.
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