What Happens to a Brokerage Account When Someone Dies?

Managing a deceased person’s brokerage account involves understanding its legal structure and fulfilling tax obligations. This guide clarifies the general procedures for handling these accounts.

Understanding Account Ownership

Account ownership is the primary factor dictating how brokerage assets are handled after the owner’s passing. Different structures determine whether assets go through probate or transfer directly to beneficiaries.

Individual accounts, held solely in the deceased person’s name, typically become part of their probate estate. Probate is a court-supervised legal process that validates a will, if one exists, and oversees the distribution of assets, the payment of debts, and the appointment of an executor or administrator. Assets held individually cannot be accessed or distributed until the probate court issues an order authorizing an executor or administrator to act on behalf of the estate.

Joint accounts with right of survivorship (JTWROS) pass directly to the surviving owner(s) upon an account holder’s death, bypassing probate. This direct transfer happens automatically, simplifying ownership transition. The surviving owner provides a death certificate to the brokerage firm to remove the deceased’s name.

Transfer on Death (TOD) or Pay on Death (POD) accounts allow the account holder to designate beneficiaries who receive assets directly upon death. Similar to JTWROS accounts, TOD/POD designations enable assets to transfer outside of probate, offering a streamlined method for beneficiaries to access funds.

Accounts held within a trust are managed by a designated trustee according to the trust agreement. The trust document governs asset distribution upon the owner’s death, usually bypassing probate. The trustee manages and distributes the trust’s assets to the beneficiaries as specified.

Notifying the Brokerage and Gathering Information

Promptly notifying the brokerage firm of the account holder’s death is a necessary initial step. This notification can be made by phone, online, or in person. The firm requires specific documentation to verify the death and the authority of the individual acting on behalf of the estate or as a beneficiary.

Required documents include a certified death certificate, the deceased’s full name, address, and account number(s). The notifier (executor, beneficiary, or joint owner) must also provide identification. This ensures the brokerage interacts with authorized individuals and protects the deceased’s assets.

For individual accounts, the brokerage requires Letters Testamentary or Letters of Administration. Letters Testamentary are issued by a probate court when there is a will, granting the named executor legal authority. Letters of Administration are issued when there is no will, appointing an administrator. These court orders provide official proof of authority.

For trust accounts, provide the trust agreement and proof of the trustee’s authority. TOD/POD beneficiaries need identification to claim assets. The brokerage may temporarily freeze the account after verification to prevent unauthorized activity.

Accessing and Transferring Assets

After the brokerage has been duly notified and all required documentation verified, the process of accessing and transferring assets can proceed. The specific steps involved depend on the account’s ownership structure.

For joint accounts with right of survivorship, the process is typically straightforward. The surviving account holder works with the brokerage to remove the deceased’s name, making the survivor the sole owner. This usually involves submitting the death certificate and confirming their identity.

For Transfer on Death (TOD) or Pay on Death (POD) accounts, beneficiaries can directly claim the assets. They will need to complete the brokerage’s transfer forms and provide identification. Assets are then re-registered in their names or distributed as cash, without needing to go through probate.

For individual accounts, the executor or administrator, armed with Letters Testamentary or Letters of Administration, provides instructions to the brokerage for asset distribution. The executor decides whether to liquidate assets or transfer them “in-kind” to beneficiaries’ accounts. After distribution, the deceased’s brokerage account closes. Process length varies by estate complexity and account type.

Tax Implications for the Estate and Beneficiaries

Inheriting a brokerage account involves specific tax considerations for both the estate and the beneficiaries. A key benefit is the “step-up in basis,” where the cost basis of inherited assets is adjusted to their fair market value on the owner’s death. This adjustment can substantially reduce potential capital gains tax if assets are later sold, as only appreciation since death is taxed.

Federal estate tax applies only to very large estates. For 2025, the federal estate tax exemption is $13.99 million per individual, meaning most estates do not owe federal estate tax. Some states may impose their own estate or inheritance taxes.

Income generated by the brokerage account after the owner’s death but before asset transfer may be taxable to the estate, including dividends or interest. Once assets transfer to beneficiaries, subsequent income or capital gains from selling assets become taxable to them.

Brokerage firms issue tax forms for transactions and income within the account. Form 1099-B is issued for security sales, reporting capital gains or losses. If the account was part of a partnership or trust, beneficiaries might receive a Schedule K-1, reporting their share of income, losses, and deductions.