Probate attorneys frequently face issues dealing with the change of character of an asset included in a person’s estate plan. This issue typically occurs when a person dies and the specified asset has either changed in character and/or value in terms of quantity and/or quality.
People often include their securities in their estate plans. Sometimes, we discover that a gift in a will of a specific number of securities (i.e., 100 shares of ABC stock) carries with it any additional securities acquired by the person after writing his will. This raises the question regarding whether the beneficiary of the specific gift is to receive only the specified number or all of the shares of that named stock. Questions also arise when a person owned securities named in a will but later sold some of those securities after the will was executed and purchased another type of security not specified in the will, but acquired as a result of the sale of the securities specified in the will.
Fortunately, we have some guidance provided by the Florida Probate Code, the Uniform Probate Code, and the Restatement of Property (Third). The Florida Probate Code provides:
732.605. Change in securities; accessions; nonademption
(1) If the testator intended a specific devise of certain securities rather than their equivalent value, the specific devisee is entitled only to:
(a) As much of the devised securities as is a part of the estate at the time of the testator’s death.
(b) Any additional or other securities of the same entity owned by the testator because of action initiated by the entity, excluding any acquired by exercise of purchase options.
(c) Securities of another entity owned by the testator as a result of a merger, consolidation, reorganization, or other similar action initiated by the entity.
(d) Securities of the same entity acquired as a result of a plan of reinvestment.
(2) Distributions before death with respect to a specifically devised security, whether in cash or otherwise, which are not provided for in subsection (1) are not part of the specific devise.
Below are some examples of the issues and how they are handled under our probate system:
Stock Splits
What happens if a person writes a will devising 1,000 shares of ABC Corporation stock to a beneficiary, and after writing the will, ABC Corporation splits its stock 2 for 1. A testator’s death, as a result of the stock split, the testator owned 2,000 shares of ABC Corporation stock. Under the law of most states, whether or not the devise is specific or general, the named beneficiary is entitled to 2,000 shares of ABC. The devisee is not, however, entitled to any cash dividends paid to the testator before death on the original or additional ABC shares.
Stock Dividend
Imagine the same scenario as above, except that after the person writes his will, ABC Corporation declared and paid a stock dividend of two shares of stock for every 100 shares owned. At death, as a result of the stock dividend, the person who wrote the will (the testator) owned 1,020 shares of ABC Corporation stock. Again, under the law of most states, and under the Uniform Probate Code and the Restatement of Property, regardless of whether or not the testator’s devise is specific or general, the devisee or named beneficiary is entitled to the testator’s 1,020 shares of ABC. The devisee or named beneficiary is not, however, entitled to any cash dividends paid to the testator before death on the original or additional ABC shares.
Stock Spinoff
What about if the person writes a will devising 1, 000 shares of ABC Corporation stock, and after executing his will ABC Corporation spins off one of its divisions, ABC Technologies. All shareholders of ABC Corporation received three shares of ABC Technologies stock for every 100 shares of ABC Corporation stock owned. At death, as a result of the spinoff, the testator owns 1,000 shares of ABC Corporation stock and 30 shares of ABC Technologies stock. Whether or not the testator’s devise is specific or general, the devisee or named beneficiary is entitled to the testator’s 1,000 shares of ABC Corporation stock and 30 shares of ABC Technologies stock. The devisee is not, however, entitled to any cash dividends paid to the testator before death on the ABC or ABC Technologies shares.
Stock in a merged corporation
Using the same example above where testator will devised 1,000 shares of ABC Corporation stock and after executing his will, ABC Corporation merged with DEF Corporation to become A-Z Corporation. All shareholders of ABC Corporation received a certain amount of cash and three shares of A-Z stock for every share of ABC Corporation stock owned. At death, as a result of the merger, the testator owned 3,000 shares of A-Z Corporation stock. Whether or not the testator’s devise is specific or general, the devisee is entitled to the testator’s 3,000 shares of A-Z. The devisee is not, however, entitled to any of the cash received when the two corporations merged or to any cash dividends paid to the testator before death on the ABC or A-Z shares.
