What happens to free shares in an inheritance?

Question to an expert

What happens to free shares upon the death of their holder?

Companies sometimes grant a certain number of their own shares to their employees. The latter only become owners at the end of an “acquisition period”, and can only sell them at the end of a “retention period”. The duration of these periods is set by the company (within certain limits).

If the beneficiary of these free shares (the “grantee”) dies during the acquisition period, his or her heirs may request the allocation of the shares within six months of the death. The allocation of shares will become definitive at the time of the request and the heirs will be able to transfer them without having to respect a retention period.

Capital gain purged by death

In this scenario, the free shares do not form part of the taxable estate assets of the deceased. The heirs will be taxed upon transfer of the securities, according to the same rules as those which would have applied to the deceased (they vary according to the date of allocation of the shares), if they respect the retention period. Otherwise, the taxation will be without any particular advantage.

On the other hand, if the beneficiary dies after the period of acquisition of the free shares, they enter into the taxable estate assets. The capital gain on sale is purged upon death. But the obligation to retain shares ends.