During the administration of an estate, it is common to find assets held in the USA or Canada. Many shareholders find themselves with shares in USA companies due to company buyouts or mergers, which they may not have been aware of. A common example is a UK shareholder in Cadbury gaining Kraft Heinz, Dr Pepper Snapple and Mondelēz International shares.
If you are administering an estate with North American assets, you can expect to encounter complicated procedures in both the USA and Canada. Both countries have adopted procedures which can appear to be complex, strict, and not user friendly for those situated outside of either country.
How do you deal with the administration of North American shares?
You will need to register the death with the share registrar or transfer agent, which will then allow you to either transfer the shares out of the name of the deceased or arrange to sell the shares. Depending on the company that you are dealing with, there will be a set procedure for this process.
Administering North American shares will usually require you to obtain a Medallion Signature Guarantee (sometime referred to as a Barcoded Signature Guarantee, or a Medallion Guarantee), which is a legal requirement for the transfer of US shares. With some Canadian shares, this is not always required, depending on what you are planning to do with the shares.
The purpose of the Medallion is to confirm to the asset holder that the signee of a document has been checked by the Medallion provider and that they can rely on the papers provided, and carry out the requested transaction. Should a fraudulent transaction occur where a Medallion stamp has been provided, the asset holder would take recourse with the provider of the Medallion stamp.
Up until the summer of 2013, Medallions were being obtained by many UK firms through a connection that had been made with a large US based bank. However, this bank withdrew their service to the UK market without notice. What followed was months of negotiations with North American asset holders and those who oversee the Medallion Programme. This resulted in many estates simply not being able to finalise the administration of the assets, as it was only in a few instances that executors or those assisting them, were able to negotiate an alternative to the Medallion requirement.
Thankfully, the Medallion Programme Administrators recognised that the absence of a Medallion provider to the UK market was resulting in bad press for the North American stock market and that something had to be done. A huge sigh of relief could be heard from those administering North American assets when the news came through that there is a now a new Medallion Signature Guarantee provider for the UK market, with potentially more to follow. Finally, after months of frustrating delays, the administration of the assets can now be finalised.
If you are an executor or administrator of an estate and require assistance with administering shares located in the US or Canada, our International solicitors have decades of experience in this area and we would be delighted to assist.
The process to attend to the shares will depend on the requirements of the transfer agent and how the shares are held. Most procedures require the completion of standard forms, which usually have to be completed in a particular manner to avoid being rejected when processed.
Many overseas residents find the procedures confusing, as the forms are usually prepared in a way which presumes a connection to North America. Some transfer agents are now charging additional fees if the forms have not been completed in the way that they require.
For the majority of death registrations, it will be necessary to provide a Medallion Signature Guarantee on the paperwork.
What is included in the registration service?
The “Registration Service” includes the following work:
- Registration of death with the transfer agents and claiming entitlement to holdings where required;
- Providing all necessary forms to comply with the registration requirements, completing all details requested and providing full advice on the correct manner in which these must be signed;
- Providing Medallion Signature Guarantees where required on the death registration paperwork at no additional charge;
- Ensuring adequate insurance cover is in place when sending all documents, papers, certificates of title to the transfer agents. Arranging transportation to transfer agents by courier;
- Arranging for the transfer or sale of shares, reissuing uncashed dividends, providing accounts and distribution of the proceeds.
In addition, in some cases, it may be necessary to attend to the following for which we would provide you with additional costs advice:
- Completing US estate tax forms and attending to all IRS requirements to obtain federal tax clearance, also known as, “Form 5173 Transfer Certificate”;
- Obtaining replacement share certificates where the originals are missing by completing indemnity papers and arranging the required surety bond;
- Completing the formalities to have any restrictions on the shares removed;
- Searching records for escheated shares, or confirming escheatment through the transfer agents to then claim entitlement to abandoned property through the relevant US State.
Internal Revenue Service
Do overseas executors need to be concerned about reporting US assets to the Internal Revenue Service?
For most estates, there will be a requirement to comply with the Internal Revenue Service (IRS) reporting procedures when dealing with the administration of US shares. Executors will also be required to complete the forms requested by the transfer agents for the death registration. If these forms are not completed correctly, the asset may become subject to 28% withholding tax.
For estates where the value of the US assets at the date of death exceeded $60,000, the executors or administrators of an estate will have to apply for federal tax clearance from the IRS.
This is unfortunately a long process, usually taking between 6 – 9 months – sometimes much longer. It is also something which is not often listed as a requirement by the transfer agents when you initially contact them for assistance. When it is mentioned, they usually refer to a, “Form 5173 Transfer Certificate”. Many people find that they are only told about this requirement once they lodge all the completed forms. As it takes such a long time to be arranged, reporting the US assets to the IRS should be attended to as soon as possible.
Will US estate tax be payable?
If the deceased was domiciled within the UK and not a US citizen, generally, no US estate tax will be payable on the US shares due to the Double Taxation Agreement between the US and the UK. However, there is still the obligation to apply for the clearance certificate by lodging the US estate tax return (usually form 706-NA and supporting forms and documents).
If the deceased was domiciled in the Republic of Ireland, US estate tax may be payable, as the Double Taxation Agreement between the Republic of Ireland and the US works differently to that with the UK. If the US estate tax is not paid within the IRS time limits, interest and penalties will start to accrue.
How can Lester Aldridge assist with this kind of administration?
With our contacts at the IRS and experience of their procedures, our International Probate Services team would be pleased to assist you in arranging to obtain Federal Tax Clearance.
Unclaimed property and escheated assets
In the US, all financial institutions are required to report to the relevant State all instances when personal property has been abandoned or unclaimed after a period of time specified by State law. This is usually due to a long period of inactivity.
When an asset is declared as abandoned or unclaimed, the State then claims the account through the escheatment process, with the State becoming the owner of the asset.
Stocks and shares (also known as securities) are usually sold by the State and the funds are then treated as state funds. However, if a person makes a valid claim for the abandoned property, the State will normally provide the claimant with cash equal to the value of the asset at the time of the escheatment or, if an investment is still held, arrange for a transfer of ownership.
Why does the State often sell escheated shares and stocks?
Usually this is done to protect the owner of the shares and to preserve the value of the shares at the point of escheatment. While the value of the shares may of course increase over time, there is also a real risk that the value may decrease, or something may happen in the future to the company, which may make the shares less valuable.
Why do escheated assets come up so often in estates?
In the case of shares in the name of a deceased owner, accounts are often declared as inactive because dividend cheques are no longer being cashed, or the account into which the dividends were being paid has been frozen or closed.
Escheatment of US shares is becoming increasingly common, particularly in matters where the estate has had to go through the long process of obtaining federal tax clearance before they can attend to the administration of the assets. Many transfer agents will still proceed with escheatment, even if they have been notified of the death, as some are unwilling to update their records until the death registration has been formally completed.
How can our international solicitors assist with unclaimed funds and escheated shares?
Our International Private Client team is experienced in submitting claims to US State Departments in order to claim escheated assets and we would be delighted to assist you. We also have experience in searching for unclaimed property when the estate is not sure if assets have been escheated or not.
We always aim to provide our clients with a fixed fee at the outset. Sometimes this is not possible, for example, if the extent of the estate is not yet known, or the requirements need to be confirmed first. In that instance we will usually provide you with a fixed investigation fee with the full fee and requirements then being agreed with you once the initial investigation is complete.
Please contact us at +44 (0)1202 786194 or 786118 for an initial discussion about your matter, or email us.
Missing North American Share Certificates
Are original share certificates required?
If North American shares are held by a physical certificate, as opposed to electronically and the certificate(s) cannot be found, or the one you hold is old and has been confirmed as no longer valid, you will need to arrange to obtain a replacement certificate from the share registrar or transfer agents to attend to the shares. This will be a requirement whether you intend to sell or transfer the shares.
What if I am missing share certificates?
To arrange a replacement share certificate, you will need to obtain the required papers from the transfer agent, arrange to complete the required indemnity, apply for a surety bond and pay the stipulated fee. The process can be expensive and does unfortunately add to the amount of time that it will take to deal with the shares.
In some instances, obtaining the indemnity forms from the transfer agents can be a lengthy process. The indemnity forms can be daunting to complete, as they are usually prepared in a format that would only be familiar to North American residents.
Unfortunately, some companies will charge you an additional fee if the papers are not completed correctly. Most North American transfer agents have a company that they use to obtain the required surety bond and this will mean that, not only will the papers have to be completed to meet the standards of the transfer agent, but also that of the surety bond company.
Is it costly to lose a share certificate?
The surety bond which is required for a missing share certificate is quite expensive, especially when compared to what UK insurers charge when dealing with a missing certificate for a UK shareholding.
Most of the surety bond providers charge a fee of between 3 – 5% of the share value, for all shares covered by the missing share certificate. In addition, there will often be an administration fee.
If you are dealing with an estate with North American shares and you think that there might be missing share certificates, you should firstly check if the shares are indeed certificated. Many US companies now automatically convert shares to “book-entry” or DRS shares upon any change to the account. If they are confirmed to be certificated, you should make enquiries with all family members and professional advisors to see if someone is holding the originals, for example, it is not unusual for the certificates to be held by a bank, solicitor or accountant.
How can our international solicitors help with replacing missing stock or share certificates?
Our international law solicitors attend to applications for surety bonds frequently when attending to the administration of North American assets and we would be pleased to assist you with the process.
Frequently Asked Questions
It can be. You will only be able to obtain a Medallion Signature Guarantee from us if you have proof of the holding. Furthermore, if you are not sure of the number of shares held and draft the necessary papers in accordance with what you believe the holding to be, you run the risk of not dealing with the whole shareholding during the transaction.
If further shares are later confirmed, you will usually have to go through the whole procedure again to deal with the additional shares. Our International Private Client team can, in most instances, arrange for confirmation of the shares with the North American transfer agent.
This depends on where the deceased was domiciled and what assets you are dealing with, but in most instances the answer is yes. The executor or administrator of an estate has a duty to settle the US estate tax position and they should be wary of the pitfalls.
If you are attending to shares in the US that had a date of death value below $60,000 and the deceased was not a citizen of the US, then the IRS requirements are usually met by completing the death registration procedure with the transfer agents. However, if this is not done correctly, you could find that the asset is subject to withholding tax.
As part of the “Registration Service” that our International Private Client team offers, the required IRS papers are completed and lodged. If the shares are valued at over $60,000 at the date of death, or when combined the total US shares held in the name of the deceased exceed this threshold, a Federal Tax Clearance certificate will be required – often referred to in correspondence from the transfer agents as a, “Form 5173 Transfer Certificate”. Click here for more information about obtaining federal tax clearance through Lester Aldridge.
Yes, especially in connection with US shares. Not only may the company in which the shares are invested have been through corporate actions, resulting in a change to the shares held, but also the shares may have been escheated.
Yes. If the shares are held in certificated format the transfer agents will require the share certificate in order attend to the death registration and transfer. Not all shares are held by share certificate, it is becoming more common, especially with US shares, for the shares to be held electronically, often referred to as “book-entry” or “DRS” shares. For book-entry shares, confirmation of the shares is required, but no share certificates. For more information about missing share certificates, please click here.