How to Transfer Stock: The Process and Tax Rules

A stock transfer involves changing the ownership of shares from one person or entity to another. This process applies to various situations, such as when shares are sold, gifted, inherited, or moved between investment accounts. This guide clarifies the parties involved and the required documentation for stock transfers.

Key Parties and Methods

Several entities play distinct roles in facilitating stock transfers. Brokers act as intermediaries between investors and stock exchanges, handling the buying and selling of securities. When shares are held in a brokerage account, the broker manages electronic ownership records.

Transfer agents, typically banks or trust companies, maintain official shareholder records. They manage ownership changes, issue and cancel stock certificates, and distribute dividends. Transfer agents are particularly relevant for physically issued stock certificates or shares held directly on the company’s books, known as direct registration.

The Depository Trust Company (DTC) is the world’s largest central securities depository. DTC holds physical securities and records ownership electronically, enabling efficient transfers between financial institutions. Most securities transactions settle through DTC’s book-entry system, minimizing physical certificate movement.

Stock can be held as physical certificates or electronic (book-entry) shares. Physical certificates are paper documents, while electronic shares are recorded digitally by a broker or transfer agent. Most stock holdings are electronic, streamlining transfers by eliminating risks and delays of paper documents. Electronic shares are tracked in a digital ledger.

Information and Documents Required

Transfer forms, such as a stock power form or letter of instruction, require details including the legal names and addresses of the transferor (current owner) and transferee (new owner), their Social Security Numbers or Taxpayer Identification Numbers. Precise security details are also needed, such as the company name, CUSIP number, and number of shares.

Proof of ownership is another essential requirement. For shares held electronically, a recent account statement from the brokerage firm or transfer agent, typically dated within the last 90 days, serves as sufficient evidence. If physical stock certificates exist, the original certificates must be submitted. While most shares are now held electronically, physical certificates are still valid and must be presented for transfer if they represent the ownership.

Valid government-issued identification, such as a driver’s license or passport, is typically required for both the transferor and transferee. This ensures identity verification and helps prevent fraudulent transactions. Financial institutions and transfer agents may require copies of these identification documents to be submitted along with the transfer forms.

A Medallion Signature Guarantee is often a mandatory component for many stock transfers, especially those involving physical certificates or significant value. This is not a simple notary stamp; it is a specialized assurance from a financial institution that the signature is genuine, that the signer has the legal authority to sign, and that the guarantor accepts liability for any forgery. Such guarantees are provided by banks, credit unions, or brokerage firms that are members of specific Medallion programs like STAMP (Securities Transfer Agents Medallion Program).

To obtain a Medallion Signature Guarantee, individuals typically need to be existing customers of the financial institution due to the liability the institution assumes. It is advisable to contact your bank or broker in advance to inquire about their requirements and to schedule an appointment. You will generally need to present a valid photo ID, the completed transfer documents (unsigned until the appointment), and proof of ownership.

Additional documents may be necessary depending on the specific nature of the transfer. For inherited stock, a certified copy of the death certificate is always required. If the estate is going through probate, documents like Letters Testamentary or a small estate affidavit from the probate court will be needed. For shares transferred to or from a trust, a copy of the trust agreement or a trustee certification is typically requested.

In cases of divorce, a certified copy of the divorce decree, along with any supplemental court orders such as a Qualified Domestic Relations Order (QDRO) or property settlement agreement, is usually necessary. A notarized letter of instruction or acceptance may also be required, clearly detailing the assets to be transferred. These specific requirements ensure the transfer complies with legal stipulations.