A number of individuals own stock in either Prudential Life Insurance Company (Prudential) or MetLife Insurance Company (MetLife) and are not aware of it. If they are aware of it, they are not sure how they became a shareholder. A number of times, the process by which they became an owner is called demutualization. This demutualization occurred around the year 2000 when Prudential and MetLife returned profits to their policy owners by issuing shares of stock to those eligible life insurance policy owners without the policy owners paying for them. (A number of other life insurance companies exist that went through this demutualization process, but this article will only focus on Prudential and MetLife.)
After the demutualization, Prudential and MetLife sent information to the policy owners and gave them a number of shares of stock depending on the value of their life insurance policy. The shares were held by a transfer agent and the policy owners did not receive stock certificates. Some policy owners immediately sold the shares back to the company and others retained the shares. These shares are completely separate assets apart from the ownership of the life insurance policy. Any action that is taken with regards to the shares of stock will not affect the life insurance policy and any changes made to the life insurance policy do not affect the shares of stock.
Each year the shareholder receives an annual 1099 tax statement from the transfer agent that shows the number of shares that they own as well as the dividends that were paid on those shares in that taxable year. These dividends are normally paid out annually in the form of a cash payment. These dividends must be reported on the shareholder’s individual federal income tax return.
Both Prudential and MetLife each have a transfer agent which administers the stock account and is able to handle changes and/or questions related to the shares of stock. For example, if the shareholder wishes to sell the shares, re-title them, or transfer them to their brokerage account, the request needs to be made to the transfer agent. A shareholder can deal with the transfer agent individually or request the assistance of their financial advisor.
****This information can be put beside the article or wherever you want to put it Prudential Life Insurance Company Transfer Agent-Computershare Shareholder Services PO Box 43070 Providence, RI 02940—3070 800-305-9404 www.computershare.com
MetLife Insurance Company Transfer Agent-Mellon Investor Services, LLC PO Box 358447 Pittsburgh, PA 15252 800-649-3593
Pursuant to the IRS, the cost basis of shares received through a stock demutualization is zero. For example, if 100 shares of stock are owned as part of a demutualization and the per share value of the stock is $30/share, the value of the shares is $3,000. If the original shareholder sells the shares during life, the proceeds will be $3,000 less any administrative costs and the sale must be reported on the federal income tax return.
The sale will create a capital gain and the tax will be between $450—$600.
Two issues sometimes occur after the death of the shareholder if the shareholder retains the shares until death. The first issue is that the shares are sometimes forgotten until after the estate is administered and then the estate needs to be re-opened to change the ownership of the shares. This will create additional estate costs. The second issue is that most of the time these shares are owned solely by the decedent. If the executor is aware of the shares, the shares will be subject to probate and require various procedures to occur before they can be transferred to the estate beneficiaries. In order to avoid these issues, the shareholder needs to contact the transfer agent during life, request the appropriate forms, and title the shares in such a way so that they will be easily transferred at death to the shareholder’s desired beneficiary. For example, the shares could be owned: by a revocable trust, jointly with right of survivorship with another, or with a transfer on death beneficiary designation to another individual.
If an individual owns a Prudential or MetLife insurance policy, they should determine whether they also own shares of stock in Prudential or MetLife and plan accordingly.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663