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Death can be a touchy subject, but there’s a whole dimension of logistics you have to deal with the passing of your loved one. In the financial realm, inherited shares take up a lot of room at the discussion table—and they need to be managed appropriately for their beneficiaries to make the most of it.
From understanding tax liabilities to attempting to sell the entire asset holdings, managing inherited shares can significantly influence one’s financial future. If you’re the recipient of these shares, it’s in your best interest to know the ins and outs of these acquired assets to ensure you’re maximising it fully.
While just the thought of adding new capital into your portfolio can be relieving, there’s a wide range of tax implications, legal processes, and market dynamics that you’ll have to navigate to confidently manage these inherited assets. You need to hold complete awareness of the process and difference of this asset type compared to your normal shares of stock.
If you’re struggling to wrap your head around the matter, this article will help you properly plan around your inherited shares to ensure that you’re legally and most effectively handling these assets. Let’s get started.
When a loved one passes away, their estate and assets may be distributed to their heirs. This typically includes property, money, jewellery, and other tangible goods. These are inherited goods.
Inherited shares work the same way. The only difference is that these shares are stock holdings of the loved one who has passed that is then passed onto the next of kin.
The deceased person may have already stated in their will the distribution rights and allocation. If this is not made known, then it’s automatically assumed that the spouse, the next generation, and immediate family members will own a significant portion of it.
If you haven’t done so yet, contact your country’s respective tax department (such as the ATO for Aussies) to inform them of your relative’s passing. This ensures that they’ll no longer try to reach your loved one or make tax penalties.
If you’re unsure who’s in charge of handling the deceased’s financial portfolio and beyond, check the will. It may grant an executor or multiple executors who bear the responsibility of dealing with the deceased’s financial affairs. If the will doesn’t point to an exact person, it’s assumed that the next of kin or spouse will handle the financial obligations.
You are also encouraged to contact a registered tax agent or the government agency themselves for advice on advice on how to proceed.
These people can also help you with contesting a will, applying for a probate, and general administrative duties surrounding handling the last individual’s holdings.
The primary or designated executor will also need to get a court-issued document that recognises them as the authorised legal personal representative (LPR).
Let the ATO know about this. This helps you gain access to your deceased’s financial accounts and have unrestricted authority to manage their tax dues, including their final date of death tax return.
According to the Australia Taxation Office, there are no inherited taxes in Australia. This is to simplify the tax process and to reduce the financial burden to the next of kin.
That said, the deceased estate and deceased individuals are categorically two different entities from a legal perspective. This means that the deceased estate, which includes inherited shares, will be taxed onto the next of kin provided that they’re gaining money from it. This is in the form of capital gains tax.
If the inherited shares have earned dividends after the passing of the loved one, this will be part of their estate. If the beneficiary lays claim to the estate, they’ll be taxed according to the CGT scheme.
That said, if the beneficiary acquires shares after September 20, 1985 (the date CGT was introduced), the share’s value will be deemed the same as the value the stock has been bought during the time of purchase by the deceased. However, for shares acquired before that date, no capital gains tax will be applied upon their sale, as CGT laws were not yet in place.
Inherited shares won’t be taxed under the CGT scheme upon transfer. However, if the executor sells the shares, the estate will be liable for CGT based on the profit, calculated as the difference between the original purchase value and the sale price.
If the process of selling shares inherited from a deceased estate still feels confusing, that’s a completely understandable feeling. The good news is that digital-owned shares can be sold online, making the process more seamless and convenient for executors.
That said, it’s necessary to make tax and legal considerations before pushing through with the sale. It’s also important to fill out the necessary paperwork to process the transaction. It’s in your best interest to consult with a tax and legal professional to walk you through the steps.
However, you can read the step-by-step guidelines below for a basic rundown of the process:
Ensure that there are no conflicts on who owns the estate. Confirm your allocation by reading through the deceased’s will’s orders.
If there’s still room for doubt or conflict, consult with a legal professional to handle a fair distribution.
You need to provide a death certificate to show proof of the death of the shareholder. You’ll also need to provide a record of their will, tax records, bank statements, tax returns, share certificates, and any supporting documents that show relevant financial records. Make multiple copies of each.
If you’re having trouble finding and gathering this information (or one specific paperwork), consult with a tax agent and a probate genealogist to help you streamline the process.
Once you have all the verification tools you need, look for the online broker used by the now-deceased who can facilitate the exchange.
Provide your Security Reference Number (SRN) and ID to start the process via email. They may also request you to fill out an application form—which you should do. Once done, send it to them via email or form submission.
Then wait a couple of days until you get a message saying you’re either approved or rejected.
If you’re approved, then you can proceed. You’ll have access to the deceased shares and can choose to hold onto the assets or sell them.
If you choose to hold them, you don’t need to pay taxes. But once you do, you’ll need to pay CGT based on the difference between the selling price and the purchase price (granted that the deceased bought the share after September 20, 1985).
The rest of the steps consist mainly of waiting until someone places a buy order for that stock. Once done, you’re well on your way to making the most of your estate’s shares with only one major thing stopping you: tax filing.
You’ve finally sold the share. If you’ve received a net profit from the transaction, calculate the difference and work out your CGT using an online calculator.
Keep thorough records of the sale, including the transaction details and any tax liabilities for future reference. You’ll need this for your annual tax filing and other legal purposes.
And that’s all there is to it! Be sure to confirm that you’re the executor if you’re going through all these steps. To do so, you’ll need to submit your probate application to your state or territory’s Supreme Court, alongside other paperwork, to grant you the rights to administer the estate.
We hope this article helped you understand inherited shares in a deeper light!
