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What Is Inherited Stock?

Recently, Samar’s grandfather passed away leaving him a valuable collection of stocks. At the very first, Samar didn't know much about these inherited stocks, as he wasn't a stock market expert after all. However, the curiosity in  Samar encouraged him to dig deep and very soon he realised the value of these stocks, each with its own legacy. He also realised how the value of some stocks has grown substantially and has a crucial impact on his financial stability.

 

Samar's story is one of the examples of why undertaking stock market concepts like inherited stocks is important. These help you make the most of your valuable inheritance. If you're also someone who is struggling, like Samar, to know more about inherited stocks, what they mean, what are their tax implications, and whether you should hold or sell them, then worry not. Stay tuned and continue reading as we explore inherited stocks and everything related to them in detail.

Understanding Inherited Stocks

Inherited stocks can be simply understood as the shares or equities that are transmitted to an individual via inheritance. This means if an individual receives equity shares of a company as a beneficiary after the demise of its original owner, then these shares are termed inherited stocks. The beneficiary becomes the new owner and they may choose to sell or hold these shares as per their preferences.

 

Say, Samar inherited Apple shares. Now, he has become the owner of these shares where he may benefit from the price increase of these shares and earn via dividends. 

Legal Process of Transferring Inherited Shares

Now that you have understood the meaning of inherited stocks and how beneficial they are, let's move forward.

 

As mentioned, inherited stocks can be valuable assets, however, inheriting them is not similar to inheriting other assets like gold, jewellery, or cash. In fact, there is a legal process for transmitting inherited shares. Further, when talking about inherited shares, you cannot miss reading about their legal transfer. Let's try to understand the legal procedure involved in the transmission of inherited stocks.

  1. In case the shareholder already has a registered nominee to transmit their shares in case of unexpected demise, the process becomes easy.
  2. To ensure the seamless transmission of shares, the nominee needs the following documents to be prepared:
    • Transmission request form: A transmission request form that is duly attested has to be submitted to the company by the nominee.
    • Death certificate of the shareholder: Death certificate of the original shareholder or a copy of the same that is duly attested.
    • Share certificate: You also need to submit the original shareholder certificate to claim the ownership rights.
    • PAN: You also have to attach a copy of your PAN. Make sure it is self-attested.
  3. Submitting all the necessary documents to the registrar of the company or the managing bank ensures easy transfer of shares without any legal complications.
  4. However, for shares valued up to ₹5 lakhs, you also need to submit an NOC or No Objection Certificate from all other legal heirs.
  5. In case the value of the shares exceeds ₹5 lakhs, you might need to attach other documents like probate of will, succession certificate, and a letter of administration.
    • Probate of will: This includes the will of the deceased member along with legal validation, explaining the distribution of assets and more.
    • Succession certificate: It is attached when there is no will left by the deceased member, making the nominee eligible to handle financial decisions.
    • Letter of administration: The court grants LOA for the management of an individual's assets in case they haven't left any will.
  6. Once you gather and submit all the above-mentioned documents, the transmission can happen smoothly.
  7. Additionally, in cases where no nominee is submitted by the shareholder, the shares are passed down to the legal heirs. Here as well, you need to submit the death certificate, transmission form, and NOC for shares of up to ₹5 lakhs.

Tax Implications of Inherited Stocks

When it comes to inherited stocks, one of the most frequently asked questions is related to their tax implications. Understanding the tax implications on inherited stocks is important for your financial planning. In fact, it may help you make decisions related to holding or selling these stocks. However, you must understand that there is no tax on the inheritance of stocks in India. This means you need not pay any tax for the price increase of the stocks from the time of their purchase to the time of the shareholder's demise.

 

However, once you've inherited the stocks, you are supposed to pay applicable taxes on capital gains, taxed at a long-term rate. Additionally, you also have to pay suitable taxes if the stocks offer dividends. In case you decide to sell these shares, they will be taxed as per the holding period of these equities.

Managing Inherited Stocks: Sell or Hold?

In cases where you inherit securities or equities unplanned and out of sudden, it is natural to wonder what to do with them. One of the first questions that comes to mind is whether you should hold them or consider selling them. Well, this particular decision is impacted by a variety of factors. To start with, the stocks or the company might have been of some sentimental importance for the deceased shareholder. However, your decision to hold or sell these inherited stocks cannot solely depend on the emotional quotient. Instead, you should try and consider other factors like your risk tolerance, portfolio diversification, tax implications, and more to make a final call.

 

For example, if you plan on passing or transferring these shares to your heir or loved ones, you may consider holding them. However, if you see that the inherited portfolio has a very similar profile to your own portfolio, consider selling a few shares to reduce and spread risks.

How to Transfer Inherited Shares to Your Demat Account

To transfer inherited shares to your demat account automatically, you need to have a demat account. Here is a step-by-step procedure on how you open a demat account and get your inherited shares transferred in the same.

 

  • To open a demat account, consider choosing a depository participant or DP. Here, you may choose any broker or bank that aligns with your needs.
  • Now, consider filling out the account opening form that can be found on the official website of the DP.
  • Now, fill in your necessary details like personal info, bank account details, and contact information, and attach the necessary KYC documents.
  • Now, once your documents are successfully verified and you sign the agreement, your account can be successfully activated in some time.
  • Now, to get inherited stocks transferred to your demat account, submit the essential documents like death certificate, transmission form, share certificates, and PAN to the company's registrar.

Common Mistakes to Avoid with Inherited Stocks

Inheriting equities or stocks all of a sudden can feel a bit overwhelming at the start. Such inheritance may bring several new opportunities to you, eg, new financial goals, clearing off debts, spreading the risk, and much more. However, it is important to understand such investment isn't just about the positives, in fact, you need to think about your financial goals and long-term impact.

 

Here are some mistakes you need to avoid with inherited stocks to make the best earnings and reduce risks.

 

  • Say no to simply mingling different portfolios

It is important to understand that the two portfolios are different and are made based on the financial goals of the owner. This means that the inherited portfolio might have been in the best interest of the owner, but there is no assurance that they are suitable to your goals. Therefore, you simply should not mingle the inherited portfolio with your own. Instead, consider diversifying. For example, if the inherited portfolio is very similar to your own, consider selling a few stocks to reduce risks and make your portfolio more well-rounded.

 

  • Emotional selling is not the ‘It’ strategy

This is one of the most common mistakes individuals make with inherited stocks. Make sure you're not one of them. Don't engage in emotional selling merely because of emotions or short-term uncertainties of a company. Instead of rushing, take proper time to understand the holdings and their impact on your financial goals.

 

  • Not doing enough research

This is another common mistake related to inherited stocks. Though inherited, these stocks now are your own and have a certain value. Given that case, it is not wise to not indulge in proper research, and simply hold on to these shares because of emotional value. Instead of that, consider researching more about the companies, their market value, financial health and performance, and adjust them accordingly.

 

  • Not following tax implications

Because inheriting stocks feels new to you, it is common to feel surprised and overwhelmed. However, before making decisions about selling or holding them, make sure to understand their tax implications. Consider reading about price appreciation, taxes on dividends, sales, and much more.

 

  • Don't be afraid to take risks

As mentioned earlier, inheritance stocks bring several new opportunities. Further, these come with more freedom, allowing you to invest and grow bigger and better. Based on the stock's value and your financial goals, you may need to reconsider your risk appetite.

 

  • Don't fail to consider your investment goals

While doing experiments with your investment stocks, don't forget to consider your investment goals. This means you should simply not engage in selling or holding based on market fluctuations in the short term. Rather, focus on your long-term goals, carefully review your portfolio, and try maintaining your asset allocation in place.

Conclusion

Inherited stocks are passed on to an individual in case of the demise of the original shareholder. These stocks offer several benefits like the opportunity to invest more, clear off debts, and more. However, with inherited stocks, you should be aware of the tax implications, and other provisions to make the most out of it. 

 

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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

 

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.  

 

For All Disclaimers Click Here: https://www.bajajbroking.in/disclaimer

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