Ensuring proper division of a person’s possessions and assets according to an individual’s wishes is one reason it is important to have a will. Unless prior arrangement are made, when a person dies, all shares of stock become part of the person’s estate. A will ensures those stock shares are properly distributed.
When a person dies, the shares of any stocks he owned are placed into his estate. Upon death, any property owned by the deceased (including any stocks and bonds) get added to the value of the estate. The date of the deceased passing away determines the value of the estate. Under federal law, however, assets transferred to the deceased’s spouse (or assets transferred to a charity) are exempt from estate taxes.
If a person passes away without leaving behind a will, this person has died “intestate.” This means the state decides how the estate gets divided among any surviving members of the deceased’s family. One of the problems with this is a family member may get more of the estate than the deceased would have wanted. Other problems include legal issues arising from sorting out an estate. Many people hire attorneys when someone dies without leaving a will in order to make sure the process of dividing the estate remains fair. When stocks are involved, things become even more complicated, since there are various tax issues to consider when a person passes away. In some states, such as New York, every county has a surrogate’s court that deals with estates and trusts.
Known as "Joint Registration With Rights of Survivorship," stocks can actually be held by two or more individuals. When one of the stockholders dies, the shares pass to the other individuals who have rights of survivorship. However, if two or more individuals own shares of stock without WROS, known as "Tenants in Common," if one of the joint stockholders dies, transfer of his portion of the stocks goes to his estate.
In many cases, an individual receiving stocks when the stockholder passes away does not pay taxes on the stocks until the stocks are actually sold. When the stocks sell, the price of those stocks is taxed as capital gains. To determine the amount of capital gains, subtract the purchase price of the stock from the sale price of the stock.