What Happens to Shares when a Shareholder Dies?
When a shareholder dies, their shares are distributed according to their will. However, complications can arise if there is no will.
When a person dies, many questions are left remaining as to what happens with their assets which include their shares. Answers to this question mainly depend on which state you are in and which Act applies. In New South Wales, the Succession Act 2006 (NSW) is the relevant law. In all states, however, the will of the deceased will decide what happens to property and assets. Some complications can arise where there is no will is left behind. This article will look at some of the things you will need to know in both instances. Firstly, it is important to know who has the power to make these decisions once a person passes away.
Who has the Power?
When writing a will, a person will need to specify who the ‘executor’ of the will is. This is the person who will execute the wishes of the deceased. This can be in relation to several things such as funeral arrangements and gifts. In addition, they may be required to pay debts as well which need to be done first. It is the executor of the will that holds the power. To be able to do any of this, the executor must obtain a grant of ‘probate’. Probate is a legal document given by a court that gives the executor the right to manage the property and assets (which include the shares) of the deceased. Once probate has been granted, the executor will have the power to undertake the requirements of the will. If the executor is inexperienced or is unsure about their responsibilities, they should seek legal advice.
You can also find out more about the roles and responsibilities of the executor here.
Where There’s A Will
When a will is left behind, the executor will be stated in the will. Once probate is granted to this person, they must exercise the wishes of the will. The wishes may be to do any number of things, but in relation to shares, this is usually one of two.
The first will be to pass them on as a gift, which is known as a transfer. If you are to receive a gift from a will, you are known as a beneficiary. To transfer shares to a beneficiary, the company should be contacted and notified of the deceased. This is done to obtain details about the shares and potential dividends. Transferring different types of shares and securities will sometimes require a different application. For example, stamp duty needs to be paid on unlisted securities. Further, if shares are transferred to the executor who is also the beneficiary, a separate application is also required. If shares are held with a bank, most banks detail how transfers are done through their website. They will usually require certified documents that prove probate has been granted.
The second will be to sell the shares. What happens to the money received from selling the shares is up to the discretion of the will. In the same way as transfers, if shares are held with a bank, there will be specific applications the executor will need to fill out. This will usually be called a ‘Deceased Estate Trade Form’. This form will identify the executor, the shares to be sold and the fees the bank will charge on the sale.
It should be noted that the person inheriting assets must keep a record of transfer for Capital Gains Tax purposes. Legal advice should be sought in this area if you are unsure about how the specifics of asset transfer is done.
Where There Is No Will
Legal consequences become complicated when no will is left behind. Organise your financial wishes with an estate-planning lawyer to make appropriate arrangements to ensure this doesn’t happen.
An eligible person must apply for a Letter of Administration with the Supreme Court before assets are distributed. Those that can apply for this letter includes a spouse, a relative or a de facto partner. This person becomes the administrator of the estate. The administrator is responsible for tasks similar to the executor. They also have to arrange funerals, collect assets and pay debts. Legislation in the Succession Act 2006 (NSW) then determines what happens to assets and who is to receive them beyond this. It also sets out the order of importance when considering beneficiaries. Surviving spouses or de facto partners are first considered, followed by children of the deceased. If neither of these parties are available, relatives of the deceased will have a claim to assets.
Similar to when a will is left, shares can be transferred or sold. Relevant forms are generally the same, except the administrator fills the role of the executor.
When a person dies, what happens to their shares and assets is ultimately determined by their will. If a will is not available, the Succession Act 2006 (NSW) applies. Shares, just like other assets can be sold or transferred regardless of the existence of a will. It is important when writing a will or shareholders agreement to know what liabilities and obligations exist for yourself and others. Speak to a lawyer about how to best make sure that your assets are distributed the way you want.
Michael is a legal intern at Lawpath working with the content team. With an interest in contracts, intellectual property, and constitutional law, Michael is currently completing a Bachelor of Laws with a Bachelor of Commerce at Macquarie University.