Dividing stocks between beneficiaries in the event of the account holder’s death can be complicated depending on how many beneficiaries there are.
Suppose you are named as the successor trustee, administrator, or executor of a deceased person’s estate.
In that case, you will need to understand how to divide inherited stocks in accordance with the instructions left by the deceased in either a trust document or a will.
In order to divide inherited stocks, bonds, or mutual funds fairly and sensitively, it is also important to understand the best practices for dividing such accounts.
To learn how to divide inherited accounts containing stocks, mutual funds, or bonds, read on.
Best Practices For Dividing Inherited Stocks
It is important to follow best practices when dividing inherited stocks to avoid complicating the process.
First of all, wherever possible, you should avoid selling any stocks that are being held in taxable accounts.
This is because doing so could lead to what is called a taxable event where the beneficiaries involved will be required to pay tax on their inheritance.
If the stocks being held in the deceased’s account constitute a loss, the realization of this loss should be left to the discretion of the beneficiaries. Your job as the executor or administrator of the will is not to act as a financial advisor for the beneficiaries.
Dividing Inherited Stocks
1. Obtain The Relevant Documents
Before you can start dividing up the stocks in the account for the heirs of the deceased, you will need to ensure that the proper documentation is in order.
Of course, you will need the will or trust document left by the deceased. You’ll also need a death certificate to prove that you are entitled to divide the assets.
In addition to this, you should have copies of the financial statements related to the decedent’s account.
You can get these by contacting the financial services firm used by the decedent and showing the documents discussed above to prove your authority.
Once you have obtained the decedent’s financial statements, you can begin the process of dividing the stocks evenly.
Most of the time, if there are several beneficiaries, the instructions left by the decedent will request that the stocks be divided evenly between the heirs, which simplifies the calculation.
However, if the will or trust document calls for an uneven split, you will need to follow these instructions.
For the sake of simplicity, let’s assume that there are 3 beneficiaries and that the decedent’s account contains 3,000 shares of stock.
In this scenario, each share is worth $150, meaning that the contents of the account is worth approximately $450,000.
If the shares were separated into more than one trade lot (meaning that each trade lot would probably have its own cost basis), you would need to divide each position, individually, as equally as possible, before dividing up any remaining shares.
However, let’s say that the $450,000 was contained in a single trade lot, you would simply divide the 3,000 shares equally by the number of recipients, which would be easy in the context of the above scenario.
However, things aren’t always this simple, and we’ll discuss what to do if shares don’t divide evenly in step number 4.
3. Consider Capital Gains And Losses
You might want to adjust the shares distributed to each beneficiary according to the tax bracket that the different heirs fall into.
If one beneficiary receives 0% capital gains due to their tax bracket, for example, it would be logical for that beneficiary to get an appreciated share of the account.
Whereas a beneficiary in a higher capital gains tax bracket might receive a share constituting a loss because the increased capital gains would balance it out.
With that being said, not all advisors will balance shares according to tax brackets. If the decedent’s estate is large, it is likely that shares left over can be divided evenly, minimizing the need to adjust for differences in capital gains.
Sometimes, a single beneficiary in the 0% tax bracket will intend to sell all of the capital gains, and in this scenario, that beneficiary might voluntarily take the capital gains in their entirety.
4. Request Liquidation (If Necessary)
Now, if you find that the shares in the decedent’s account do not divide equally, you also have the option of contacting the firm and instructing them to liquidate the remaining share(s) so that the money can be divided evenly.
Alternatively, an additional cash payment may be calculated and given to one heir while the other heir(s) receives the outstanding share(s).
5. Put Instructions For The Firm In Writing
Once you are sure that your calculations are fair and correct, you will need to leave instructions in written form for the firm to act on.
The firm is required to immediately act on your instructions as the executor or administrator.
Frequently Asked Questions
Can You Sell Stocks And Divide The Money Between Beneficiaries?
Technically, you can sell stocks before dividing the assets between beneficiaries, but this is usually not advised, especially if the account holding the stocks is taxable.
Even if beneficiaries will eventually have to incur losses by paying tax on their inheritance, you should leave the timing of this up to them.
What If Beneficiaries Disagree About How To Divide Stocks?
In case of a disagreement between beneficiaries about how the stocks should be distributed (for example, if one beneficiary wants to sell first and the other doesn’t).
You can divide up the shares equally and allow beneficiary 1 to sell their shares without affecting the other beneficiary.
Dividing inherited stocks between multiple beneficiaries can be a complex undertaking, especially if the beneficiaries are in different tax brackets or if the shares are in different trade lots.
However, even if the shares do not divide equally, you should be able to distribute the assets in a fair way by liquidating outstanding shares or adjusting the shares according to capital gains.