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.

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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.

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Wills & Shareholder Agreements

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Intestacy Rules in Colorado

Colorado's intestacy rules are similar to the rules found in other states but don't provide for inheritances by remote relatives, such as distant cousins. Colorado's laws allow inheritances by a birth parent who adopted out the deceased person or any birth children the deceased person put up for adoption, but only to prevent the estate from going to Colorado because of a lack of heirs. State laws set the inheritance rules for the estate of a person who died intestate; however, these rules don't take the financial needs of his heirs into consideration.

Colorado State Laws on Community Property When a Spouse Dies

When a Colorado spouse dies, his property is distributed by the terms of his will, if he has one; however, a spouse cannot completely disinherit his spouse in a will since Colorado law steps in to limit how much the deceased spouse can give away to someone else. If a spouse dies without a will, his property passes according to state law, which gives a large share to his surviving spouse.

How Is a Beneficiary Removed from a Will?

When a person is named in a will, he is called a beneficiary. Heirs, on the other hand, are individuals who stand to inherit from a relative who failed to make a will; thus, leaving inheritance division to the laws of intestate succession. Testators, or will makers, may remove beneficiaries from wills by executing specific documents that effectively disinherit the beneficiary -- usually by express terms.

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