Brokerage accounts allow an individual investor to deposit funds and place investment orders through a licensed brokerage firm. Through a brokerage account, you can buy or sell stocks, bonds, mutual funds, etc. Brokerage firms must abide by strict legal guidelines governing access to account information. The result is that sometimes heirs can’t even see account statements. It’s been enough of a problem that Financial Industry Regulatory Authority (FINRA) set up a toll-free number to help senior investors who have concerns or issues with brokerage accounts or investments. FINRA also provided tips for making the transfer process as smooth as possible. Here are some advance planning steps to take to make the transition to a beneficiary easier.
Communicate your intention to family members. Family members need to be aware of your brokerage account holdings and selected beneficiaries. Keep beneficiary information up to date and heirs should have an idea about investments in the brokerage account and why you selected those investments.
Beneficiary designations prevail over those in a Will. In a contest between a Will and a beneficiary designation, the designation always wins. If you cannot remember who you have designated, contact your brokerage firm and ask who has been recorded as a beneficiary for each account and make any changes to conform to your Will or estate plan. If you transfer your account to another firm, double-check that the beneficiary designations also transfer.
Provide a quick, easy way for heirs and beneficiaries to contact the brokerage firm. In order to distribute money from an account your brokerage firm will need your tax identification number, the account holder’s death certificate and proof or their own identity. Trade confirmations and account statement can help heirs quickly locate contact information.
Consider placing the brokerage account in a trust. Trusts eliminate the need for the heirs to go through the probate process and provide a quick doorway for trustees to get access to the accounts.
An elder law attorney can work with your brokerage firm to explain your options for transferring your brokerage account upon your death. Since this is an area governed by estate law, it’s important to remember that if you move or you have property in more than one state that your documents must be updated accordingly.
Here’s an article from the Wall Street Journal.
If you inherit a brokerage account, here are some steps you need to take.
- Gather documents. Documents may include trade confirmations, receipts or statements. The documents may be electronic so check the deceased’s online investing and banking sites.
- Create a list. You’ll need a list of investment accounts, account numbers and contact information.
- Contact the investment firm. For each account, contact the firm and freeze the account. This may be easy if you are an authorized account holder since they may do this with just a phone call. Otherwise, ask for the documentation you need to transfer the investments. According to Vanguard, beneficiaries of a Vanguard account may need a notarized or court-certified small-estate affidavit, a certified death certificate or proof of authority (certified letters of testamentary dated within 90 days), and supporting documentation depending upon the account type and circumstance. Contact the company to get specifics. At the very least, you’ll need the account owner’s full name and address of record and his or her last four digits of their Social Security number to even get started with the process.
- Fill out any required forms and mail to the investment firm. This may be extremely time consuming. Be prepared for the fact that if you are inheriting a brokerage account, transfer of that account will take time.
You may want to dispose of an inherited brokerage account without selling it. For instance, you could donate it to a charity, gift them to someone other than a spouse or transfer the account to an irrevocable trust. The point is that inheriting a brokerage account just might be the time to consider hiring a tax accountant or a lawyer.