What Happens to Stocks If a Deceased Person Doesn't List the Beneficiary?

By John Cromwell

If the decedent owns stock when he dies, the stock is included in his estate. A beneficiary is someone who receives property from the estate through a will. The entire process of distributing property is defined by the probate code of the state where the decedent lived. While state laws vary, the Uniform Probate Code has influenced almost all states’ probate laws. As a result, when speaking of probate matters generally, the UPC offers a good framework for general discussion.

If the decedent owns stock when he dies, the stock is included in his estate. A beneficiary is someone who receives property from the estate through a will. The entire process of distributing property is defined by the probate code of the state where the decedent lived. While state laws vary, the Uniform Probate Code has influenced almost all states’ probate laws. As a result, when speaking of probate matters generally, the UPC offers a good framework for general discussion.

Valid Will

If there is a valid will but it does not specifically identify a beneficiary who will receive the stock, that asset will probably be distributed through the residuary clause. A residuary clause is normally the last part of the will that distributes to a beneficiary whatever remains of the estate after all the other dispositions expressly authorized by other provisions of the will have been made.

Divorce is never easy, but we can help. Learn More

Intestate

If there is no will, there are no beneficiaries and the estate is considered “intestate.” The intestate process is a state-approved distribution plan for estate property. The property is generally distributed among the surviving relatives of the decedent. Most times the surviving spouse, parents, and children of the decedent get the property. If the decedent is not survived by any close relatives, his property may go to any surviving aunts, uncles, nephews, nieces or grandparents. If he is not survived by any living relatives, his property generally goes to the state where he lived.

Spousal Share

Another reason a beneficiary may not be named for stock is because the decedent assumed it would automatically go to his spouse. In the 13 states that follow the “community property rule,” all assets acquired during the marriage by either spouse is co-owned by both of them. When one spouse dies, the community property generally goes to the surviving spouse.

Close Corporation Shares

If the stock is not listed in a will, it may be because the stock is in a close corporation and is subject to a shareholders’ agreement. A close corporation is a non-publicly traded corporation. Often the few shareholders hold significant positions in the business. Given the nature of the business, the shareholders may not want to permit a new person gaining an ownership share merely because one of the original shareholders died. As a result, the shareholders may draft a shareholders’ agreement where the shareholders agree that when one of them dies, the business will buy out the shares from the estate. As a result the shares are not transferred to a specific beneficiary, but are repurchased by the business with the proceeds from the acquisition being put in the estate.

Divorce is never easy, but we can help. Learn More
Wills & Shareholder Agreements

References

Resources

Related articles

Does Survivorship Override the Will?

Property that is subject to right of survivorship is generally excluded from a decedent’s estate and is therefore not subject to a will. In some circumstances, however, a property loses its survivorship status and may become subject to a will. Property is governed by the laws of the state where it is located, so you should review the applicable statutes or consult with a licensed attorney.

How to Change the Shareholders' Percentage in an S-Corporation

An S-corporation is a flow through tax entity; its shareholders are taxed on their shares of the business’s income and losses, while the business itself does not have to pay income tax. A shareholder’s percentage in any corporation is the amount of shares she owns divided by the total number of shares outstanding. Therefore, to change a shareholders’ percentage, you must adjust how many shares the shareholder controls, or adjust the amount of outstanding stock.

How to Split an Inheritance

When a person passes away, his property is transferred to other individuals. This transfer represents each recipient’s inheritance from the decedent. Distribution of the person’s property can occur in several ways. The decedent may have drafted a will prior to his death describing how his property is to be distributed. If the decedent died without a will, the property is disbursed under a scheme governed by state law called “intestacy.” Prior to distribution, the estate may be subject to the federal estate tax.

Get Divorced Online

Related articles

Estate Settlement & Division of Property From a Will

Estates are settled through probate, which is a process overseen by a local court to ensure that the decedent’s ...

Does a Will Override a Warranty Deed?

Wills and warranty deeds are two methods of transferring real estate. Wills transfer the probate property of a decedent ...

Marital Estate Rights After Death

When a married person dies, the surviving spouse generally has a right to inherit a portion of the deceased ...

The California Law When the Deceased Has No Will

If a person dies intestate, or without a will, in California, his estate is subject to California's intestacy laws. ...

Browse by category