The Trust as Fund Investor

The primary benefit of trust and family foundation investment in stock funds, is the transferability of those vested assets to cash. Unlike real property, securities offer wealth enhancement features, as well as a ready source of liquidity. The Securities and Exchange Commission Act of 1934 (“The Exchange Act”) is the legislation binding securities transactions. The Act also applies to rules of securities investment and transfer of shares as part of fund interests or irrevocable trusts within federal and state estate and probate laws.  Section 16(b) amendment of the Act in 1999, improved estate planning benefits of transferable stock options,  no longer requiring stock options to be non-transferable for trust investors to take advantage of tax-exemption rules.


Still, there are qualifying rules for trust investors. A licensed attorney at law experienced at matters of estate planning and probate law can provide professional advice about securities investment and qualifying rules for trust investors.


Qualifying Rules for Trust Investors

High net worth investors holding secondary market securities like hedge funds or private equity funds as part of a trust or family foundation, must meet SEC requirements for “accredited investors” and “qualified purchasers.”


Accredited Investor

Accredited investors are those with a net worth of $1 million (excluding their primary residences) or more; or an income of $200,000 or more for two preceding years, and with reasonable expectation of meeting this requirement the current year and into the future. Trusts and family foundations qualify as an accredited investor if assets held are more than $5 million, and the entity was not formed for securities acquisition, primarily; or if a national bank or other qualifying institution is trustee; or if the trust is revocable with an individually qualified grantor.


Qualified Purchaser

If a trust holds at least $5 million in investments is will qualify as a purchaser under federal law which defines those entities as estates, family foundations, or other charitable organization set up to benefit family members. Trusts not established for family beneficiaries, or solely for the purposes of making securities investment, yet where every trustee is considered a qualified purchaser or an entity with no less than $25 million in investments also meets SEC and estate law eligibility requirements. The federal Investment Company Act of 1940 (the “Investment Company Act”) exempts private trusts of under 100 investors from institutional “qualified purchaser” regulation.


Vesting, Gifts, Tax

Before transferring stocks to or from an estate trust, obtain valuation at the time of gifting the asset to account for taxation. Professional estate planners recommend transfer of vested assets first to avoid any surprise tax valuation. The IRS does not consider securities transfer a “gift” until the asset is vested. Gift taxes are assessed at the time of transfer. Assuming income tax liability on exercise of the security contract is the responsibility of the trust. Income tax is assessed on the difference between the market and exercise price (i.e. income).


Contact an Estate Law Attorney

Estate planning is complex legal matter that can involve securities investments and other transferable assets. An attorney specializing in estate law can advise a client of rules to transferable securities assets. Ettinger Law Firm is a licensed attorney practice providing estate planning and probate services. Contact Ettinger Law Firm in New York for consultation about an investment related estate law matter.

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