Investor's portfolio: is there life after death?

Author: Yango.Investments

Over the past couple of years, several new instruments for transferring assets by inheritance have appeared in Russia. Together with a lawyer, we will figure out what happens to the investor’s portfolio after his death, whether all assets can be transferred by inheritance, whether there is a difference where the inheritance “lies” - in an IIS or a regular brokerage account, and how best to arrange the transfer of securities to the heirs.

READ IN THE ARTICLE:

✔ Are all assets inherited? ✔ What happens to an investor’s portfolio after his death? ✔ Inheritance on IIS and a regular brokerage account ✔ What is the best way to transfer papers by inheritance? ✔ When is it better to think about transferring papers by inheritance and how to properly organize this process? ✔ Inheritance tax: what is important for your heirs to know

What happens to an investor's portfolio after his death?

Registration of the transfer of rights to securities by inheritance is carried out on the basis of a certificate of the right to inheritance issued by a notary or by a court decision that recognizes the right to securities for one or more heirs.

If you were inherited a portfolio of securities, then you will be able to obtain a certificate from a notary no earlier than six months from the date of opening of the inheritance. If a legal dispute arises over an inheritance, the process may drag on for a year or even longer.

If we are talking about uncertificated securities, then in order to secure assets until the transfer of ownership of the securities to the heir, the notary or executor of the will must request an extract from the depository and demand that operations on the securities account be suspended. If the issue of ownership of papers (inheritance) is resolved in court, then similar measures should be taken by the court. Participants in the trial must ask the court about this.

If there are funds in the testator's brokerage account, then transactions with them must also be temporarily suspended at the request of a notary or court.

In this case, in any case, it is advisable for relatives and/or heirs to immediately inform the broker about the death of the owner of the brokerage account by sending a written notification accompanied by a notarized death certificate.

Such a notification (even in the absence of a notification/demand from a notary and/or court) will one way or another “turn on” the broker’s internal procedures for limiting transactions on the account and, if necessary, will simplify the process of invalidating transactions that were made with funds and securities after the death of the client .

As soon as the issue of ownership of funds and securities in brokerage accounts is resolved in the usual manner (by will or by law) or an appropriate court decision is made - and the heir has received a certificate of inheritance - you should immediately begin transferring the portfolio to the heir.

Having received the necessary documents on the right to inheritance (a certificate or a court decision on the right to inheritance), the heir turns to the depositary with an official order to resume operations on the deceased's securities account, and then with an order to carry out an operation to credit securities to his own securities account (he does not have to be opened at the same depository).

The transfer of rights to securities occurs at the moment when the depository makes a corresponding entry in the heir’s account.

If we are talking at the same time or only about the inheritance of funds accumulated in the testator’s brokerage account, then, on the instructions of the heir, they must be transferred to his bank account.

Entry into inheritance based on shares

No later than 6 months after the date of death, the heirs must contact a notary's office and apply for a certificate of inheritance. You should contact the office located at the registered address of the deceased owner of the shares. The shares, along with all other property, will be inherited either by law or by will.

How to find out if a person has shares

You can quickly and accurately find out whether the deceased has securities through a notary. When contacting a notary’s office, where the opening of an inheritance takes place, the notary will independently make inquiries to all authorities that have information about the holders - banks, registrars and the tax office. Based on the results of the responses received, we can speak with complete confidence about the presence or absence of them for inheritance.

What actions must be taken to enter into an inheritance?

You will need to collect and provide the notary with a package of documents established by law in order to enter into an inheritance legally.

death certificate;
house register or an extract from it indicating the place of residence;
documents confirming the identities of future heirs;
evidence of relationship with the deceased;
an extract from the general register of shareholders, obtained through requests from a notary.

You must also attach a receipt for payment of the fee for the securities valuation services provided.

It is necessary to take into account the existing differences in the registration of inheritance papers, depending on their type.

Inheritance on an IIS and a regular brokerage account: is there a difference?

In general, there is no fundamental difference between inheriting the right to an individual investment account (IIA) and a “regular” brokerage account.

However, several important nuances should still be taken into account.

Firstly, the account itself (neither one nor the other) is inherited.

The property and property rights that were recorded for its owner on this account are inherited. This includes cash and securities. After entering into an inheritance, the assets contained in the individual investment account of the testator are transferred to the heir (we have generally described how this happens above).

Secondly, tax deductions for an individual investment account that the testator previously received will not have to be returned to the heirs to the state, even if the previous (deceased) owner of the account opened it less than three years ago. The heir will receive the remaining assets in the account in full in a regular brokerage account without any deductions.

At the same time, if the testator himself did not manage to take advantage of the IIS deductions due to him by law, then you will not be able to do this for him, being the heir to his assets under the IIS.

Controversial issues of inheritance of shares: several successors and debts of the deceased to the joint-stock company

Difficulties with inheriting shares arise if there are several claimants to the inheritance, including those who have a guaranteed share.

A will can regulate in advance the transfer of specific property to a specific person or organization.

But without it, according to the law, the block of shares goes into the common shared ownership of all successors. This complicates the issue of exercising non-property rights: without division of shares, they cannot be involved in the management of the joint-stock company.

The successors have the right to “split” the package of securities by agreement or by court. However, what to do with shares that are not divided into whole parts (for example, 3 heirs claim 1 share)?

The law allows for the issuance and circulation of fractional securities. However, Federal Law No. 208 of December 26, 1995 does not provide for inheritance as a method of creating them, so the courts most often refuse division. One person gets the entire package, the rest receive monetary or other compensation for it.

In this case, the opinion of the issuer of shares (a representative from the joint-stock company) and the registrar must be taken into account.

Each of the heirs can apply to be included as owners of shares in the personal account. But the registrar has the right to refuse him this, since the transfer order must be signed by all successors.

The court also determines the fate of shares that the former owner did not fully redeem at the time of death. Heirs do not immediately become members of the joint-stock company and often miss the deadline for payment. Most often, they receive additional time to pay off the debt.

If there are no heirs by law or will, the law provides for the transfer of property into the ownership of the Russian Federation. There is no current unified practice that would regulate this issue. In most cases, securities are transferred to the balance sheet of the joint-stock company with their further sale.

After the death of my father, I inherited shares in Gazprom Neft. What should I do with them, do I need to have them appraised and do I have to pay tax to receive them?

You need to contact a notary to obtain a certificate of inheritance rights to the shares, present all the papers indicating that the shares belong to your father. You become a shareholder of the company and have the right to receive dividends. There is no tax paid when inheriting shares.

Expert opinion

Kuzmin Stanislav Timofeevich

Legal consultant with 6 years of experience. Specializes in the field of civil law. Member of the Bar Association.

However, if you decide to sell the shares, you are required to pay personal income tax, reducing the amount of income received by the expenses incurred by your father when purchasing them.

What is the best way to pass papers on to inheritance?

There is simply no ideal way to inherit securities and funds in a brokerage account that would suit everyone equally and for all occasions.

Each case is unique in its own way. This may be due to both the personality of the testator and the circle of heirs - their number, age, relationships, their obligations to creditors, as well as the quantity and quality of property - in other words, the value of the inherited portfolio.

Oddly enough, the easiest and least expensive way for the testator is to do nothing at all. In this case, the portfolio of securities will be transferred to your heirs in accordance with the rules and priority established by law.

However, as practice shows, it is precisely this method of inheritance that most often gives rise to a lot of disagreements between the heirs, which result in lengthy and expensive legal disputes, accompanied by swearing and forever damaged relationships.

Will

If you still want to be concerned about the fate of your property and the moral health of your loved ones, it is better to resort to drawing up a will. In this case, the heirs will have fewer problems obtaining securities from the depository.

You can draw up a “regular” will, indicating in it as heirs certain people who will inherit the rights to the portfolio, registering specific accounts, as well as the shares in which the inheritance of funds and papers on them occurs, if there are several heirs.

There are no legislative rules for identifying brokerage accounts opened by the testator in the text of the will, just as there is no obligation to indicate the exact amount of funds transferred by inheritance and/or the name and quantity of securities recorded in the testator's brokerage accounts.

Investments in the securities market are highly fluid: the volume of funds invested, as well as the ratio of cash and securities in brokerage accounts (for example, due to coupon payments, depreciation and redemption of bonds) can constantly change.

So the most obvious option might be:

bequeath funds and securities, indicating not their quantity and name, but only the full details of all open brokerage accounts in which these assets can be accounted for by the testator at the time of death;
determine the rules for inheriting funds and securities in these accounts: for example, about inheritance by just one specific heir, or about inheritance by several heirs in specific shares.

It is important to take into account here that the depositary is not obliged to make entries on the division of securities and funds according to the shares specified in the certificate of inheritance or a court decision, without a written agreement (joint order) of the heirs on the division of property or a court decision containing an indication of the amount of securities and cash that is due to each of the participants in the common shared ownership.

Inheritance contract

Along with the “ordinary” will, which is a unilateral transaction, an inheritance agreement has recently been introduced into Russian inheritance law as a type of inheritance by will.

Under such an agreement, it is possible, for example, to transfer a “portfolio” to a specific heir, obliging him to continue to use the funds received exclusively on the securities market, and 50% of the income from owning it with a certain periodicity to distribute between specific relatives or to direct to other purposes strictly agreed upon in the agreement goals.

By signing such an agreement with the testator during his lifetime, the heir agrees in advance with its terms, accepting the corresponding responsibilities, whereas a “regular” will does not allow this.

Legacy fund

A couple of years ago, another form of transfer of inheritance appeared in Russian legislation - through an inheritance fund.

It’s worth mentioning right away that this instrument will most likely be of interest primarily to wealthy testators - owners of large portfolios who, for example, for some reason are not ready to transfer their inheritance directly to the property of relatives or other persons, as is the case with inheritance by law or by traditional will.

In this case, a notarized will is also drawn up, but the heir becomes an inheritance fund - a legal entity (non-profit organization) established by a notary after the death of the testator. The inheritance fund is managed by the individual and/or collegial body specified in the will.

The conditions for the creation, operation and liquidation of such a foundation may vary, but they must be determined in advance in the will, including the testator's decision to establish the foundation, the draft charter of the foundation and the conditions for managing the foundation.

Here, for example, is what the conditions for transferring an investor’s portfolio by inheritance through a hereditary fund might look like:

after the death of the testator, the rights to his “portfolio” are transferred to the foundation on the basis of a certificate of inheritance rights issued by a notary;
the fund's quarterly income from owning the "portfolio" is transferred to the bank accounts of the fund's beneficiaries - the spouse, elderly parents and the charitable foundation "X" (the beneficiary can also be a legal entity, with the exception of a commercial organization);
upon reaching the age of majority, 30% of the fund’s “portfolio” is subject to transfer to his sole ownership;
upon the child’s 25th birthday, the remaining 70% of the fund’s “portfolio” is subject to transfer to his sole ownership, and the fund is subject to liquidation;
the fund's property remaining after liquidation is subject to transfer to all beneficiaries of the fund in proportion to the scope of their rights to receive property or income from the activities of the fund (other conditions for the transfer of property, including other circles of persons, can be provided).

It must be said that in general the law gives very great scope for structuring the fund in each specific case.

This instrument is somewhat similar to Western trusts, but there they can be created during the life of the testator, whereas in Russia the law so far only provides for a posthumous trust.

In any case, you should think about establishing an inheritance fund only when we are really talking about inheriting a more or less expensive portfolio, the profit from which will cover various types of administrative costs, since the fund must be managed by specific people (managers).

But despite the higher costs compared to other instruments for transferring assets by inheritance, an undeniable argument in favor of creating a fund is the higher security and safety of assets after the death of the testator.

This may include, for example:

the property of the foundation, like the foundation itself, does not become the property of the beneficiaries after its establishment;
the fund is not liable with its property for the obligations of the beneficiaries to third parties, just as the beneficiary is not liable with its property for the obligations of the fund, which protects both parties;
the rights of the beneficiary of the fund are inalienable and cannot be inherited;
new beneficiaries are determined in accordance with the terms of management of the inheritance fund, in particular, they can be determined by sub-appointment, but this again depends on the will of the testator, which he expresses in his will and documents of the fund.

No other method of inheritance creates such protective mechanisms, which is especially important if among the heirs there are the least protected categories of persons, such as young children, elderly parents and disabled people, to whose aid scammers in the form of “good neighbors” and newly-made relatives can come , friends and all sorts of other well-wishers.

Grounds for inheritance of shares

Shares and securities are inherited on a general basis with some peculiarities. This happens in accordance with Part 2 of the Civil Code of the Russian Federation. According to the rules of inheritance, they can be claimed by one or more successors (depending on the situation). There are only two grounds for inheriting property - the law and the will of the testator (will).

Inheritance by law

If a will has not been drawn up or the shares are not mentioned in the document, their inheritance occurs in accordance with legislative norms - Chapter 63 of the Civil Code of the Russian Federation.

the closest relatives can inherit according to a certain order, starting from the closest ones - children, parents and spouse, and ending with cousins, nephews and stepchildren.

There are seven lines of inheritance (Articles 1142-1145 of the Civil Code of the Russian Federation) and one additional one. As an exception, it includes dependents , who may not be his relatives.

The right to inherit shares and other property passes to the next stage if there are no successors left in the previous one .

Evidence that gives relatives the right to inherit is documents on kinship and other evidence (for example, registration of a dependent with the testator).

Inheritance by will

If the testator left a testamentary document indicating the heirs, it is the people mentioned who receive the agreed upon property, including shares.

Heirs under a will may not necessarily be relatives . The testator may appoint successors to the estate at his own discretion, guided by his own principles and preferences.

In any case, the heirs will be the so-called obligatory heirs (Article 1149 of the Civil Code of the Russian Federation), even if the testator did not indicate them in the document. Such successors may be disabled children, parents or the spouse of the testator. From the testator's point of view, it is better to mention these relatives in the will and indicate their share so that there is no confusion and delay when dividing the property.

If the document does not stipulate which of the legal successors will receive what share of the shares, they become common property and are divided between the applicants in equal parts . The exception is the share of compulsory heirs; it is calculated according to the algorithm of Art. 1149 of the Civil Code of the Russian Federation.

If the heirs do not want to accept an inheritance that includes shares (and they have the right to do so), if there are no living successors or the notary who holds the testator’s will cannot find them, after a set time the inherited property may be recognized as escheat . That is, one that does not belong to anyone, and therefore will go to the state.

When is the best time to think about transferring papers by inheritance and how to organize the process correctly?

If we are talking about a large fortune or in the circle of your potential heirs there are those same unprotected categories of people, then no matter how trivial it may sound, it is better to think about registering an inheritance today and certainly do not hesitate to prepare the necessary documents.

The most reliable way to develop an optimal scheme for transferring property by inheritance is with a lawyer who, taking into account the specific situation and wishes, will develop the necessary draft documents.

It is even better if it is possible to discuss and develop a future portfolio ownership strategy directly with the heirs in order to secure the entire structure in legally binding documents (in case of creating an inheritance fund and/or concluding an inheritance agreement). It would also be a good idea to tell the heirs about the existing debts so that they can reliably understand the full scope of rights and obligations that they will receive upon accepting the inheritance.

The scheme for transferring property by inheritance can be a combination of all three methods of inheritance mentioned above, or two of them, or even include only one.

For example, a certain part of a securities portfolio can be transferred under a “regular” will to a spouse, the other part can be left to minor children through an inheritance fund, and the remaining part can be transferred under an inheritance agreement to a sibling with the latter’s obligation to support their parents by paying them a certain amount of money monthly.

In other words, the diversification rule also works well in the case of registering a future inheritance. Modern Russian inheritance law in this sense is quite flexible and gives a lot of scope for the imagination of the testator, especially a wealthy one.

After the inheritance scheme, including draft legal documents, has been fully developed, all that remains is to coordinate and certify the papers with a notary.

Valuation of shares for inheritance

If there are securities as part of the property that is subject to inheritance, an assessment of their value is required. They are not tangible property and their value can fluctuate greatly, and the amount of state duty directly depends on their price.

Why is it necessary to evaluate shares when entering into an inheritance for a notary?

In order for the heirs to receive their share, it is necessary to evaluate the value of the shares. It is from the provided assessment report, which reflects the total value, that the notary will allocate the share of each heir and issue a certificate of inheritance.

To receive it, a receipt for payment of the duty must be attached to the list of documents. Its cost depends on the total estimated value and degree of relationship:

0.3% of the market value for the first stage of inheritance (spouses, children, parents);
0.6% of the market value for all other heirs.

Accordingly, the lower the final assessment amount, the lower the duty will be.

On what date should the assessment be carried out and the necessary documents?

The assessment is made on the date of death of the holder. Their market value on the specified day is indicated. For this purpose, data from exchanges, information from registrars and reports on similar services are used.

Where to go for an assessment

This issue is dealt with by licensed appraisal companies, whose activities are controlled by the state. They prepare a report and format it in accordance with legal requirements. Based on the provided report, the duty is calculated and the total cost of this type of property is determined.