Can Florida Personal Representative Directly Transfer Securities (Stocks, Bonds) to the Beneficiaries?
Posted By Larry Tolchinsky on April 20, 2016
A Personal Representative of a Florida Estate has legal possession and control of all the property owned by the person who has passed away (the “decedent”). This power is usually given to the P.R. both under the terms of the Last Will and Testament as well as the Florida Probate code. The P.R.’s duties will include things like making sure all the assets are safeguarded and everything has been collected and inventoried so the estate’s debts can be paid and the inheritance distributed to the beneficiaries.
Some of these assets will be tangible things like cars and clothing and jewelry; however, most Florida estates also hold financial assets like stocks and bonds. It’s one thing to hand over the keys to a vehicle, but how does the Personal Representative handle the transfer of securities to the beneficiaries? That’s not always an easy question to answer.
What are Securities?
Florida estate can hold all sorts of assets that can be categorized as “securities.” A security is defined as a financial instrument that represents one of the following:
1. Ownership in a publicly-traded corporation (stock);
2. Creditor to a government or corporation (bond);
3. Rights to Ownership (option).
Any of these types of securities are real assets recognized by state and federal law. They can be negotiated, i.e., bought and sold. They can be given a specific value in dollars and cents. And, they are issued either by governmental entities or corporate entities to individuals: the company or governmental entity that gives them out is called their “issuer.”
There are different classes of securities. First are the “certificated securities.” These are held in actual paper documents. Second are the “direct registration” securities, where they are recorded by a transfer agent on behalf of the issuer without the need for printing out a physical certificate. The rights of the issuer and of the owner are the same in either class.
Third, there are “bearer securities,” which are transferred directly between investors by endorsing them and handing them over. These are rare.
Finally, there are “registered securities,” which have the name of the holder on them, but the issuer maintains a register of necessary details pertaining to the securities. Transfers are made through “amendments” to this register. There can be registered debt securities and secondary market shares.
Stock Certificate for Allied Paper Corporation
Step One: Securities Placed Into the Estate
As part of the Personal Representative’s duties to the estate, all stocks and financial securities that are held in the name of the decedent must be placed into the name of the decedent’s estate in preparation for legal transfer of ownership. This must be done no matter how the securities are held (paper, electronically).
As a general rule, their ownership will be referenced as “ [name of Personal Representative], Personal Representative FBO Estate of [name of decedent].” The tax identification number for the estate will be noted on each security along with this new owner name.
A good practice is for a new brokerage account to be opened in this ownership name, as well, so any dividends and interest that are generated before the ultimate transfer of ownership to the beneficiaries can be collected by the estate. This is something that brokerages are accustomed to doing, so they can be helpful and instructive. Often, they will require (1) certified copy of the letters of administration; (2) affidavit of decedent’s domicile as Florida domiciliary; and (3) certified copy of the death certificate.
Does this have to be done? Yes. This is a temporary and necessary leap-frog in ownership. The stocks must be moved into the estate’s ownership in order for there to be a proper legal change in ownership. The decedent can no longer transfer legal title. That is now the duty of his Personal Representative.
Accordingly, in order for there to be a transfer of any financial asset, stock or bond, to a beneficiary, the legal ownership must be changed to reflect the decedent’s estate. Then, the Personal Representative will have the legal ability to transfer them.
Step Two: Transfer of Securities to Beneficiaries by Personal Representative
1. Florida Probate Code
First of all, before any change in ownership to the beneficiaries can be undertaken, the Florida Probate Code must be reviewed and followed. Under Florida Statute 733.612, the legal authority of the Personal Representative is outlined and must be followed unless there is a specific court order and will provision that provides an alternative. Florida Statute 733.805 is another law that must be checked, because it gives the Personal Representative guidance in how she is to prioritize her work for the estate.
Florida Statute 733.603 provides: “A personal representative shall proceed expeditiously with the settlement and distribution of a decedent’s estate and, except as otherwise speciﬁed by this code or ordered by the court, shall do so without adjudication, order, or direction of the court.”
Thus, Florida probate law, as a general rule will allow a Personal Representative, without court order, to take possession and control of the stocks and bonds held by the decedent. The probate statutes will also allow the Personal Representative to transfer these assets to the beneficiaries if otherwise allowed in an “expeditious” manner.
Which may mean that transferring the estate’s securities may be one of the first asset transfers that the Personal Representative undertakes. (For more, read our prior posts on interim distributions.)
2. Last Will and Testament
Secondly, the language of the decedent’s Last Will and Testament must be read. What provisions speak to these assets? The wishes expressed in the will must guide the Personal Representative here. For example, if the stocks owned by the decedent are to be sold in order to pay off the student loans of his grandchildren, then this must be done. The Personal Representative will have a legal duty to follow this directive even if the beneficiaries would prefer that the stocks be transferred to them.
3. Security Document Language
Third, each security must be examined. Not all security instruments are the same. The procedure for transferring ownership in securities will vary depending, for example, upon on whether the asset is a stock or bond and whether it is a publicly traded security or it is a private security.
A. Street Name
Stocks and other securities may be held in a “street name.” This is sometimes call being held as a “book entry.” Here, there are no actual stock certificates that can be held in one’s hand, they are held electronically by the broker. The Personal Representative completes a form provided by the broker that allows him to transfer ownership via the broker.
The form identifies the name, address, and Social Security Number of the beneficiary as new owner. There must be a Medallion-guaranteed signature (more on that below) by the Personal Representative. The beneficiary will also be required to complete a Federal Income Tax W-9 Form so future revenue generated by the securities for its new owner can be reported to the U.S. Treasury Department.
B. Paper Certificates or Electronic Form with Depositor Trust Company
When there are actual paper certificates involved, they can be transferred once again with the help of a brokerage house like Charles Schwab, Edward Jones, or MerrillLynch. Here, the Personal Representative must send her official letter of authorization provided by the probate court to the brokerage, notifying them of the decedent’s passing and the Personal Representative’s legal authority over the estate’s assets.
Upon receipt of the Personal Representative’s notification, the brokerage sends both the stock certificates held in their care and their preferred transfer of ownership form to the Personal Representative.
The Personal Representative then takes all these documents to a bank, or to a member ﬁrm of the New York Stock Exchange, where a “Medallion Signature Guarantee” is placed on the certificates for the Personal Representative to sign as required by the Securities and Exchange Commission. This is a federal mandate to protect against fraud and theft and maintain the integrity of the securities markets.
For more on the requirements of a Medallion Signature Guarantee, read the SEC directive, “Signature Guarantees: Preventing the Unauthorized Transfer of Securities.”
Once the certificates have been given their official Medallion Guarantees, the stocks are returned to the brokerage. At this point, the brokerage can re-issue the stocks in the names of the appropriate beneficiaries.
C. Guidelines and Procedures
The procedure for actually transferring each security will be covered by security guidelines. Personal Representatives, as well as beneficiaries, can determine how each security held by the estate should be transferred by checking first with the Securities Transfer Association (STA) Guidelines (latest revision 2015). (These can be downloaded in pdf form here.)
These guidelines cover any security, as defined by Section 8-102 of the Uniform Commercial Code (”UCC”), including certificated limited partnership interests, stock purchase warrants and options, notes, bonds, debentures and voting trust certificates, as well as “uncertificated securities.”
Additionally, each transfer agent will have its own forms and documents that will be needed to complete the transfer. Checking with their website may provide the necessary information here. And, there’s always the option of placing a phone call or writing a letter asking in advance for what documentation will be required for that particular security transfer.
There may also be a requirement that a sworn statement, or affidavit, be provided by the Personal Representative before the transfer can be made. These affidavits are required in order to evidence that the decedent’s taxes and debts have been paid, as well as the residence and domicile of the decedent at time of death.
Statements may also include that no transfer tax applies to the transaction, and that the transfer is being made to a beneficiary in accordance with the provision of the owner’s Last Will and Testament.
E. Joint Tenancy With Right of Survivorship
When a security is held in joint tenancy with right of survivorship, then the surviving tenant becomes sole owner of the security. It does not come into the ownership of the estate and the Personal Representative has no control over it. Here, the surviving tenant will be responsible for contacting the brokerage house and taking the necessary steps to complete the procedures required to remove the decedent’s name from the certificate.
F. Lost Securities
What about securities that are known to exist but cannot be located? The Personal Representative will have a legal duty to replace these certificates so they may be legally transferred to the beneficiaries. This will be governed by the provisions of UCC Section 8-405(a), which requires any claim that a security certificate has been lost, destroyed, or wrongfully taken, follow all “reasonable requirements” of the issuer of that security before a new stock is issued to the estate, including but not limited to a sufficient indemnity bond.
Questions or Concerns About a Stock or Bond Owned by a Florida Estate?
If you or a loved one are aware of security certificates owned by a decedent in an estate in which you are an heir or beneficiary, or maybe it’s part of an estate that you are owed money as a creditor, then you may need to learn more about those stocks or bonds and if they are available for transfer to you before the conclusion of the estate.
An experienced probate lawyer can help you here. And the cost of having a Florida probate attorney go over these things with you can be much less in time and money than many folk assume.
A good piece of advice if a loved one has passed away and there may be an issue with their securities, is to at least talk with a Florida probate lawyer to learn about your rights. Most probate lawyers, like Larry Tolchinsky, offer a free initial consultation (either over phone or in person, whichever you prefer) to answer your questions.
Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.
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