A security is a rather general term referring to shares of stocks, bonds, and debentures. The term “securities” also refers to a variety of interests involving an investment in which the return is primarily or exclusively dependent upon the efforts of a person other than the investor.
There are several federal laws and regulations in place to govern the sale, purchase, and creation of security interests. Such laws and regulations are intended to ensure that all investors, whether large investing institutions or private individuals, have access to specific basic facts about an investment prior to actually making the investment. People can only make sound financial investments when they can consider timely, comprehensive, and accurate information regarding the investment.
In the United States, the Securities and Exchange Commission, or “SEC,” has been given the sole responsibility of enforcing securities law. The SEC’s primary task is to protect investors, as well as maintain the integrity of the securities market. The Commission accomplishes this by requiring that public companies disclose all meaningful financial information to the public, as well as any other relevant information. This is so the public can evaluate security investments to the best of their ability and knowledge.
Can Stocks or Securities Be Passed on to Beneficiaries?
A person’s estate consists of all of their property. This property includes personal items, bank accounts, real estate, stocks and securities, and other assets. As such, stocks and/or securities can generally be passed on to beneficiaries through estate planning. A legally valid will that states a specific person should receive a specific stock or security should be sufficient.
While it is generally possible to purchase stocks or securities that may be passed on to your named beneficiaries through a will, not every state will allow such a transfer. If a state has adopted the Uniform Transfer on Death Security Registration Act, a person may arrange to have their securities transferred to a beneficiary upon their death. This transfer makes the beneficiary the new owner of the stock or security.
The Uniform Transfer on Death Security Registration Act is a law that allows individuals to name who they wish to inherit their stocks, bonds, bank accounts, and other securities without going through the probate process. Such transfers may be accomplished through a transfer on death provision (“TOD”) for securities accounts to be transferred, or pay on death provision (“POD”) for bank accounts that are to be transferred.
What Is the Benefit of Transferring Ownership of Securities? How Can I Transfer Ownership of My Securities to My Beneficiaries?
When someone transfers their securities through the use of the Uniform Transfer on Death Security Registration Act, they will not need to list their securities in their will. The benefit to this is that the transferring securities will not be subject to any probate processes. The advantage to avoiding the probate process is that securities may be quickly liquidated into cash, to be used for an estate’s expenses and debts.
As previously mentioned, in order to create a beneficiary form for securities, the securities will need to be registered as being transferable on death. This is to be done with the financial intermediary from whom the individual purchased those securities.
An example of this would be a security originally purchased from a brokerage house. The person leaving behind the security purchased from the brokerage house will need to register the security as transferable on death with the same brokerage house. After that person dies, the beneficiary can request to have the securities registered in their name. The beneficiary will likely be asked to provide a copy of the death certificate, in order to verify and authenticate the transfer.
What Else Should I Know About Securities?
It is important that all legal procedures regarding transferring securities be adhered to. The Securities Act of 1933 was created to prohibit fraud, deceit, and misrepresentation in the sale of securities. The most common form of securities abuse is insider trading, or when a person who has detailed information about a company uses that information to purchase or sell stocks. However, fraud is another common security abuse, which includes theft from a securities account.
Some potential remedies for securities fraud include notifying law enforcement, beginning a class action lawsuit, and contacting the Securities and Exchange Commission. Investors can protect their investments by:
- Ensuring that their brokerage firm is licensed;
- Checking with the Central Registration Depository (“CRD”), which contains information regarding brokers and licensing; and
- Maintaining communication with their broker.
Do I Need an Attorney for Estate Planning and Transferring Stocks After Death?
A skilled and knowledgeable estate attorney can help you plan your estate, including the transfer of your stocks and other securities. An experienced estate attorney will be informed regarding your state’s specific laws, and help you ensure that all of your securities are appropriately registered and correctly provisioned.
Additionally, the estate attorney can advise you of all of your legal options, including how to best avoid taxes or transfer issues.