You can control what happens to your stocks by choosing your beneficiaries before you die. You can create a will and leave your individual stocks to family members and friends. The stocks are included in your estate and transferred to your beneficiaries when the estate is closed. If you own a few stocks, you can designate a specific beneficiary on the stock certificate and avoid the time and expense of opening and administering an estate.
No matter which estate planning technique you use, you can change your stock beneficiaries as you see fit.
TL;DR (Too Long; Didn't Read)
Your estate planning technique – or lack thereof – will determine whether your stocks transfer to a beneficiary or joint owner or whether the state makes the decision about what happens.
Understanding Joint Ownership
If you own stocks with another person, you are both considered joint owners of the shares. When you die, the stocks immediately transfer to the surviving joint owner. The stocks don’t go through the probate process and are never included with your estate.
The surviving owner can contact the brokerage firm to get your name removed from the stock certificate. He must complete the form to retitle the stocks and provide the brokerage firm with a certified copy of your death certificate. The stocks are then registered in his name, making him the sole owner of your stocks.
Automatic Stock Transfer
Your stocks immediately transfer to a beneficiary when you die if you use the pay-on-death designation. Also known as transfer-on-death, the POD designation lets you give your stocks to a beneficiary outside of the probate process.
For example, say you own your stocks as John Doe, POD to Mary Smith. When you die, Mary immediately inherits the stocks. After completing the transfer form and submitting your certified death certificate, the brokerage firm will list Mary as the sole owner of the stocks.
Transfer Through a Will
If you die and leave a will, your beneficiaries will have to wait until your estate is probated to inherit your stocks. The court will appoint a representative to make sure your final bills are paid before your stocks are transferred. The terms of your will control how your beneficiaries inherit your stocks.
For example, if you leave 100 shares of stock to Jane Doe, John Doe isn’t entitled to receive those shares. If your will says your stocks are to be sold and the proceeds divided equally, Jane and John each will receive 50 percent of the net proceeds.
Let the State Decide
If you don’t identify the beneficiaries you want to inherit your stocks, your state’s laws will decide for you. You may think that your surviving spouse gets all your stocks when you die. However, if you have children, many states give your surviving spouse only a fraction of your stocks and divide the remainder among your children.
If you are single with no children, your stocks go to your nearest blood relatives, such as your parents or grandparents. If you have no blood relatives, your stocks pass to your state of residency.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.