P R O B A T E   &   P R O P E R T Y
March/April 2004
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Practice Pointers - Probate

Practice Pointers—Probate Editor: Diane Hubbard Kennedy, 4911 E. 56th Street, Indianapolis, IN 46220; d_kennedy@iquest.net. Guest columnist: Todd T. Jordan, Tener, Van Kirk, Wolf & Moore, P.C., 920 Oliver Building, 535 Smithfield Street, Pittsburgh, PA 15222, ttjordan@tenervankirk.com.

Practice Pointers offers suggestions for improving estate planning and probate practice. The editors of Probate & Property welcome suggestions and contributions from readers.

Hidden Assets—The Spin-off That Pays No Dividends

We all have them—clients who insist on keeping original stock certificates. They refuse to use brokerage accounts that would make life simpler for everyone. The broker will gather all certificates and determine what shares are held in book form. Most do it for free or for a small fee. If a stock has a capital transaction, the broker keeps track of it.

This is especially beneficial after a client passes away, because trying to reconstruct the assets can be a very considerable task. The individual may have known what he owned, but it is a little tough to ask him now.

A recent experience revealed the potential for missing assets in an estate. An inventory of a safe deposit box revealed numerous stock certificates and notations that other shares were held in book form. I thought I had found all of the stocks owned by the individual, but some minor discrepancies had to be clarified.

Normally the amount of shares the individual owns can be determined by looking at recent tax returns to see what dividends are reported. Dividing the amount of the dividend paid by the dividend per share gives the total amount of shares. It is then prudent to determine if the stock has split in the meantime. Little did I realize that the splits would not be as big a problem as the spin-offs proved to be. Shares issued in a spin-off from certificated shares are most likely going to be issued in book entry form, which creates a problem if the individual does not have a brokerage account.

But what about book entry spin-offs that do not pay a dividend? The Post Office stops forwarding mail after a year, and unless the company sends some information during that time period (an annual shareholder’s report, notice of an annual meeting, or a proxy statement), it may never be known that the individual owned a particular stock. By the time something happens, the estate is no longer on the mailing list!

A good example is AT&T, which has had more mergers, breakups, and spin-offs than Elizabeth Taylor. The major breakup occurred in 1984 and resulted in the creation of eleven separate companies in addition to AT&T.

In each case, a shareholder of AT&T received shares in the new companies. The shares most likely were issued in book entry form. Three companies never paid a dividend. So looking at the tax return for dividends would not reveal the stock. I happened to stumble across the stock because the tax return showed the sale of a fractional share the year of the spin-off.

In years to come, tracking stocks from companies that have been spun off will be tougher because more and more shares are being issued in book entry form. If the individual does not have a brokerage account to keep track of all the capital changes, how many hours will it take to reconstruct the estate? Having the tax returns for the year of the spin-off may be a luxury no longer available. I was able to catch this one, but how many others have I missed? How many have you missed?