Why Not to Hold Physical Stock Shares

Remember how your grandmother bought you a share of Disney stock as a birthday gift; or when you bought a few shares of Duquesne light stock in the 70’s as “everyone was” because it was paying a great dividend? Did you buy those shares of XYZ Company because your bartender gave you a stock tip, or did you work for one of those numerous companies that issued stock awards or stock options? In many cases these gifts or purchases of stocks came with the actual physical shares for you to hold.

Today most stocks exist as “book entry,” meaning you don’t get the shares in your hands.

But years ago you could…and if you did, then you probably still have those shares in a safety deposit box, shoe box, jewelry box, or in the back of a closet somewhere. Maybe the Disney stock is in a frame hanging on the wall. Or perhaps you have no clue where the shares are, but you keep getting dividend checks on a quarterly basis.

Holding physical shares of stock brings a myriad of potential problems. If they are in fact lost, it can be very costly to replace them. If you want to sell them quickly, that is not possible as they need to be placed in an investment account and/or returned to the Transfer Agent of the stock company before this can be done.

If you need to transfer ownership due to divorce or death, this can be another time consuming issue. These shares could also end up in your Estate. They may need to be valued for inheritance tax purposes. They may need to be made available and valued if you go into a Long Term Care facility.

Tracy Zihmer, Estate Planning Attorney with Feldstein Grinberg Lang & McKee, P.C., reminded us that “having physical shares is a huge pain when settling an estate.” Tracy says, “The biggest advantage of having shares in your investment account with your financial advisors–like The Musuneggi Financial Group–is the ease of transfer after death. It is such a pain to transfer stock that is in paper form. Usually the stock must be transferred into the estate and then from the estate into the heirs’ individual accounts, and then they can sell it or not. In addition, each stock may have a different transfer agent and you have to go through each transfer agent separately–it’s a very time consuming and costly process; and then you may run the risk of when you get all of the paperwork filed, the stock company switches transfer agents and you have to start over again.”

If you receive dividends from physical shares and you like using them for income, you can continue to do that after switching those shares to an investment account. You may also be able to have them reinvested in additional shares or accumulated in another investment.

Remember, even though you may have initially bought the shares for “fun” or you laughingly thought your one share could be worth thousands if the stock split someday, and even if they are just hanging in a frame on the wall…these shares are an asset, like any other financial asset.

If you are holding physical shares, or if you are getting dividends from shares you cannot locate, give us a call and we will be glad to discuss the ramifications of keeping the physical shares or offer recommendations for what you can or should do with the shares.