The death of a client several years ago highlighted an unexpected area that caused major problems for the wife (of the client). The problems related to a parcel of shares owned by the husband that were held through an account with CommSec. The problem arose when it came time to transfer or sell the shares.
The shares had only been held in the name of the husband because the majority had been acquired as a result of an employee share scheme. There can be other reasons why shares are only held in the name of one person, such as a margin scheme used by the high income earner of a couple, or a non-working spouse having the dividend paying shares in their name.
When a member of a couple dies it is not always necessary for probate to be granted. This is the case when the assets are jointly held between a husband and a wife. These assets include the family home, shares, managed investments, and bank accounts.
For my client, the family home and bank accounts had been in joint names and the SMSF had a corporate trustee. The last two remaining assets were two share holdings worth approximately $21,000.
When CommSec was contacted to have the shares transferred into the wife’s name I was told that, as the shares exceeded a $15,000 limit imposed by them on the transfer of shares held by the deceased, probate had to be obtained before they would do anything.
Institutions seeking to limit liability
CommSec is not alone in having such a low limit placed on shares held by the deceased. The reason why financial institutions and share services place a limit on the value shares is to reduce their liability in the event that the transferring of shares is challenged.
When someone is forced to obtain probate they must put together a full list of all of the assets and liabilities of the deceased, plus face legal costs that can range from $1500 to $3000. Where the value of the assets is substantial, the legal fees can be considerably higher.
There are some share services that either set higher levels at which probate is required, or take a more common sense approach. It is for this reason that advisers should be educating clients that when deciding what share service to use, transaction costs are not the only important consideration.
The results of a review I conducted into what a number of share trading services charge for a $15,000 trade, and the value placed on shares requiring probate to be obtained, proved very interesting. CommSec turned out to be the most expensive with a trading cost of $29.95 while having the low $15,000 probate limit.
There were only two share trading services that had a $50,000 limit on when probate was required. These were NABtrade, that had a share trading cost of $19.95, and ANZ E*Trade that had a cost of $29.95.
Educating clients on the alternatives they have when deciding on what share trading service to use should become a part of advice provided by planners. Where a client is currently using a share service, which could create problems for their spouse upon their death, they should be advised of the potential problem and advised of other share services that place a higher limit on the value for probate.
