MONEY

What Happens To Your Investments When You Die?

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What would happen to your stock market shares and other investments when you die? It’s a common question that people ask me and below is my usual answer.

First, investments are considered your assets – it is among the list of things that you own – and because it is as such, they become “frozen” when you die.

The  real estate properties that you own, the company shares in your stock market portfolio, the mutual fund investments that you have, and all other assets under your name become frozen.

In other words, your loved ones cannot withdraw or sell them, and the ownership can’t be transferred to them – well, not just yet.

investment-death

To unfreeze the assets, the family will need to file a Notice of Death with the Bureau of Internal Revenue within two months after the date of death, and then pay the corresponding Estate Tax within one year from the decedent’s death.

The amount of Estate Tax to be paid is based on the value of the Net Estate; that is the present or fair market value of the asset at the time of death less applicable tax deductions, which can fortunately go as high as 3 million pesos nowadays. As a formula, it looks like this:

Net Estate Value = Gross Estate Value – Tax Deductions

Update: Under the TRAIN Law, the estate tax rate is now just a flat six percent (6%) from the previous and more complex tiered rate between 5% to 20%. This makes estate tax computation less complicated and more straightforward.

Where will they get the money? They can’t get it from your assets (because it’s frozen), they have to come up with the cash on their own.

This is how life insurance becomes a tool for estate planning because if you have one, your family will immediately receive the cash benefits of your policy, which they can now use to pay the Estate Taxes.

There are other legal matters that need to be addressed when you die, but I won’t discuss them anymore. Sufficient to say that you will need a lawyer, accountant or a financial planner to assist you if you’re not familiar with the process.

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What happens to your investments after estate taxes are paid?

What’s important for you to realize now is that Estate Taxes need to be paid, so the assets and investments can be transferred to your family and heirs.

For the cash deposits in your bank accounts, your heirs will be able to withdraw them.

For real estate properties, the title or ownership will be transferred to your heirs, which will give them the right to sell it, or actually do anything they want with it because it’s now theirs.

For paper assets such as stock market shares, UITF investments, bonds, and mutual fund shares, there are two options for your family:

  1. Tell the bank or broker to sell the units or shares, and give the cash proceeds to them; or
  2. Open an account with the bank or broker, and transfer the units or shares to their account

In short, they don’t just disappear; they will in fact, be given or transferred to your heirs – but that’s assuming they know that those assets and investments exists.

If not, then they won’t be able to pay the corresponding estate tax for them; and the investment will remain dormant and unclaimed until the bank or broker notices and take action according to their terms.

So if you’re not keen on telling your family and heirs about all your wealth while you’re still alive (I know some people do), then the best option is to simply put those facts in your last will and testament.

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