By Laurey Shintani, March 1, 2022
Before the digital age, it was customary, even fashionable, for investors to take physical delivery of the shares of stock they purchased from their stockbrokers. The stock certificates were typically, printed on special paper, featured artistically designed images with a single background color and were embossed with a corporate seal to make it difficult to replicate or counterfeit. Many were aesthetically beautiful and carried an Art Deco or 1950s industrial modernist vibe. Investors often kept them in their safe deposit boxes, home safes, desk drawers, file cabinets, and shoe boxes. However, the shortening of trade settlement times coupled with the hassle and complexity of replacing lost certificates and/or estate settlements has made physical certificate issuance largely obsolete. Today, it is far more efficient for stocks (and bonds) to be held and recorded electronically in “book-entry” form in a single brokerage or investment advisory account so that capital gains and dividends can be reported to the account holder on a single consolidated 1099. All of this background information brings us today’s featured story…
Upon the passing of her mother, a long-time financial planning client brought her 90-year-old father to our office to help him sort through and organize his financial affairs. In addition to grieving over the loss of his wife or more than 60 years, he was visibly distressed over his finances, since his wife had managed their money and was obsessively secretive in her recordkeeping. Clutched under one arm was a plastic bag stuffed with old stock certificates, trade confirmations, brokerage statements, and scribbled notes that his wife had stashed in her desk for more than forty years. Although there were many other important organizational items that he needed to address, including updating beneficiaries, tracking down his old life insurance policy, filing a claim on a policy owned by his wife, reviewing and updating property registrations and estate planning documents, etc., his top priority of the day was sorting through his “stock pile”. And so, the treasure hunt began.
It took over an hour to separate the wheat from the chaff. There were physical certificates from eight companies, two of which were merged out of existence decades ago and one of which is likely bankrupt. Fortunately, all of the stocks were in joint name, which will make reregistering the stocks and getting them into a less cumbersome/more efficient ownership registration easier than if they first had to go through the probate process. Still a number of mysteries remained –
• Were reorganizations and spin-offs properly accounted for?
• Are there additional shares that were acquired from stock splits and reinvested dividends that may be held with company’s transfer agent?
• While most of the companies could be matched to 1099-Divs on their tax returns, what other companies might they own that do not pay dividends (and, therefore to not generate 1099s)?
• What was the original cost basis of the shares? (Half the original basis will be stepped up the date of death valuation, but the remaining half owned by our client’s father, retains the original basis if/when he sells.)
Further, not all the stocks referenced in the wife’s notes could be matched with stock certificates or sales confirmations. We will need to reach out to each of these companies one-by-one to determine if there are either missing shares with lost certificates or shares that are held at the company. TD Ameritrade’s back office will determine the valuation of companies and automatically update the registration with the delivery of a death certificate and an affidavit of domicile. After that, we will begin the arduous and time-consuming task of reaching out to the transfer agents for each of the companies referenced in the wife’s notes in search of shares that may be lost or held away.
The immediate benefit of our efforts was the sense of relief that our client gained from seeing our ability to help him navigate the arcane procedures necessary to gain an accounting of what he actually owns. His heirs will benefit from a much smoother transition when he passes away. It is also worth noting that this situation might have been exponentially more complex if the wife had held shares in her name only or if he had passed away without going through the process of updating the registration and consolidating the holdings into an investment account. The lesson that I wish to pass on in sharing this story is to strongly encourage older friends and relatives to account for and turn in any old stock certificates they may be holding. It will make life much easier for their loved ones later if they are either incapacitated or pass away.
Laurey Shintani offers third party paraplanning services to independent financial planners through Paraplanning Hawaii and offers comprehensive fee-only financial planning to individuals and families through Fee-Only Planning Hawaii.