California law will require investment firms to notify nonprofits named as beneficiaries on securities accounts
Gov. Gavin Newsom signed Senate Bill 1288, his office announced Sept. 27. For deaths from Jan. 1, 2027, a firm must try to notify a nonprofit beneficiary within 60 days of learning of the death, may not make it open an account and in most cases must hand over its share within 60 days of its paperwork.
Sacramento. Brokers and other firms that hold securities left to a nonprofit will have to try to notify it, and may not make it open an account to collect its share, under a California bill Gov. Gavin Newsom signed. His office announced the signing on Sept. 27.
Senate Bill 1288, by Sen. John Laird, a Democrat from Santa Cruz, changes the state law under which securities and brokerage accounts can be registered to pass to a named beneficiary at death without probate. CalNonprofits, San Diego Humane Society and Valley Humane Society sponsored it, and the Senate's floor analysis recorded no opposition.
What firms must do
Once a firm learns that every owner of a security has died, from a death certificate or from its own records, it must make a reasonable and good faith effort within 60 days to notify each named beneficiary. One document from one party is enough to start the process.
A nonprofit corporation, charitable trust or 501(c)(3) organization proves who it is with its employer identification number, telephone number and mailing address. The firm may not ask its staff or board members for Social Security numbers, dates of birth, home addresses or other personal details. The firm must let the organization establish its claim with proof of the death, its IRS exemption letter, its identification number and contact information, and a completed Form W-9.
A firm may not require a beneficiary to open an account or become its customer. Co-beneficiaries may claim separately, and each is to receive its share within 60 days of handing in all required documents, unless a lien, a court order or a dispute over the security stands in the way. A firm that cannot comply without breaking federal or state law must tell the beneficiary which law or rule prevents it.
When it applies
The rules cover nonprofit and charitable beneficiaries when the last owner dies on or after Jan. 1, 2027, and all other beneficiaries when the last owner dies on or after Jan. 1, 2028. They do not reach deaths before 2027.
According to the Senate floor analysis, the sponsors said nonprofits had not been told they were named and had faced inconsistent paperwork. In one example, each of several nonprofit beneficiaries on one account had to supply the owner's death certificate. Mr. Laird's office said money left unclaimed for three years passes to the state. The sponsors wrote that the bill "does not create new beneficiary rights or alter estate plans."
“Nonprofits should not have to navigate unnecessary obstacles simply to receive a gift that was lawfully and intentionally left to them.”
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