Selling stocks of a decedent is a straightforward process that I knew would be part of the estate administration. Early in the estate administration, there were four companies in which the decedent held stock. However, I didn’t know the registration. After looking through boxes of statements, I noticed all communications involving the stocks were from a transfer agent. This discovery confirmed that the stocks were held in direct registration since transfer agents usually handle direct investments for companies. So, after figuring out the stock registration, I put the process of selling stocks of a decedent aside until approved as executor.

The Transfer Process

In early December, 2012, approved as executor, I called the transfer agent for instructions on how to sell the stocks. The transfer agent handled three of the companies in question. So, the representative gave me instructions and the following overview of the entire selling process:  

• Since there are three companies with different account numbers, you must open a separate account for each company in the name of the estate.

• With the creation of the new accounts, stocks from the original accounts will transfer into the new accounts.
  

• After the transfer of stocks to the new accounts, the new account owner will have control of the stocks and can transfer them to a brokerage account or manage them as they are.

So, after receiving the overview and instructions, I began working on the first transfer form as depicted in the article How to Transfer Stocks Owned by the Decedent. Over the next few days I completed the other three transfer forms. Once completed, I brought the transfer forms to the bank for processing. Finally, after two weeks, I received the access codes to all four accounts. This gave me control, as executor, to manage the stocks.

Selling Stocks of a Decedent

After receiving the access codes, I had to decide where to hold the stocks. There were two options:  

• I could open a brokerage account in the name of the estate and have the four new accounts transferred. This would combine the accounts and make selling the stocks quicker for less commission.

• I could keep the four new accounts where they were. By keeping the stocks in the direct registration system (DRS), selling the stocks would take longer for a much higher commission.

Since the stocks were performing well in the market, I gave myself a little time to decide. In the end, I decided to keep the stocks in the DRS for the following reasons:

• All the stocks had enough capital gains, even when applying the stepped-up basis rule, to cover the higher commission costs.

• Since I had to sell the stocks, having a brokerage firm go through a transfer process so I could sell all the stocks, then close the account, didn’t seem fair. Also, I wasn’t sure a brokerage firm would agree to make such a transfer.

In early January 2013, I sold all the stocks on a day when the stocks were rallying. The reason I sold that day was to avoid losing value while waiting for the trades to execute. So, in terms of the estate I managed, selling stocks of a decedent was straightforward, but tedious.

The Problem

The problem in the estate I managed is that the decedent kept four stocks in four different accounts held in direct registration. The decedent never looked into combining the accounts with a brokerage firm. Combining accounts would of made life easier for the decedent and executor in the following ways:

• By transferring the four accounts to a single brokerage account the decedent would have received one statement a month instead of four, making the stocks easier to track.

• The executor would have only one account to open in the name of the estate and not four accounts.

• When selling the stocks, the transfer would remove the stocks from a direct registration to a street name registration. This would allow for quicker trade executions at low commissions.

In the end, this problem wasn’t costly to the estate. The taxes on the capital gains were basically a wash after using the stepped-up basis rule less the high commissions. However, with proper estate planning, such a fiasco should never happen.

Note:

The reason trades take longer in the DRS is because trades execute in batches at the end of the day. In some cases, in longer intervals such as a week or a month.

Recommended Reading

For a detailed description of the stock transfer process and the banks role in the process, read the article How to Transfer Stocks Owned by the Decedent.

For a description of the different registrations, including the DRS, read the following article Holding Your Securities – Get the Facts from the SEC.

Was this article helpful to you? Do you think I made the right decision to sell the stocks using the DRS? Share your comments and questions in the comment are below.