If a stockholder dies, his stock may have to be transferred to a surviving spouse or other heir. In some instances, stock can be transferred while the stockholder is alive as well. In any case, while there aren't specific taxes related to transferring the stock, the new owner must obtain a tax ID number, and provide it to the firm that transfers the stock to satisfy future tax obligations.
Tax Certification Requirement
When a stock certificate is transferred to a new owner, the new owner must fill out a tax certification form and return it to the brokerage company that handles the stock. This allows the brokerage company to accurately report dividends to the new owner, who must then pay taxes on them. If the new owner doesn't fill out a certification form, the brokerage must withhold taxes from dividend payments until the new owner fills out a W-9.
Some states require the new owner to pay inheritance taxes if stock is transferred into his name. If a state has this law, the brokerage will often provide an inheritance tax waiver that the new owner must fill out to avoid paying inheritance taxes on his inheritance. The Security Transfer Association has up-to-date guidelines that show which states have inheritance tax laws.
If stock is transferred to a foreign owner, the foreign owner must register a tax ID number with the IRS. Foreign owners don't get a tax number by filling out a W-9 form. Instead, they must fill out a W-8BEN. It's important that the owner fill this form out as soon as possible, as the stock brokerage must withhold U.S. taxes from the dividend payments until he does so.
In addition to satisfying tax requirements, both the old and the new owner -- or their representatives if one is deceased or incapacitated -- must prove their identity. Most brokerage firms require the original owner or a representative to get a Medallion Guarantee Stamp. This is a verification of identity by a bank or financial institution. It's different than a notarized signature, which is often not acceptable to brokerage firms.