You can transfer securities into your living trust, but you must be mindful of state and federal laws as well as any requirements of the stock or bond issuer. You will probably want help from a lawyer, but here are some issues to keep in mind.
To put stocks or bonds that you hold into a trust, you typically use a document called a “securities assignment” (sometimes called a "stock power"). This document asks the securities’ “transfer agent” for permission to transfer the securities to your trust. The transfer agent is the person or company that is responsible for keeping track of the securities issued by a corporation or government. Contact your securities’ transfer agent for details about what it will need to receive.
If the security is publicly traded - bought and sold to the general public through a stock exchange, like the New York Stock Exchange - the stockholder's signature has to be “guaranteed” by a commercial bank or stock brokerage firm. This is similar to having a signature notarized.
If you have brokerage accounts - that is, if a stockbroker holds your stock certificates and sends you periodic statements of account – you will need to send a letter to the brokerage firm requesting the transfer. The firm will require documentation of the trust’s trustee's powers to deal with securities. Each brokerage firm will have its own specific requirements for this process.
Similarly, most mutual funds firms require your guaranteed signature on a letter requesting change of ownership designation.
If you plan on transferring U.S. Savings Bonds, you need to use government form FS Form 1851 to ensure that the bonds are not considered to have been "cashed in" when transferred to the trust. That way, you won't have to report any income from the bonds on your federal taxes. The form is complicated, so it's a good idea to consult an attorney or a financial advisor for help.
A "qualified incentive stock option" ("ISOP") is an employee stock option that gives both the employer and the employee-stockholder certain tax benefits as long as certain conditions are met, such as not selling the stock within two years after the employee exercises the option (the "anti-disposition" rule).
Unexercised ISOPs should not be transferred to a living trust. Instead, you should designate the trustee as the person authorized to exercise the options in the event of your death. But, you have to make sure that the trustee is instructed not to sell the stock within two years after the options were first granted to you or within one year after the trustee exercised them.
A "closely-held" corporation in one in which the stock is publicly traded, but all of the stock is held by just a few stockholders, often family members. You may face a challenge if:
The beneficiary whose stock was redeemed probably entered into a "10-year agreement" for tax purposes, and so re-acquisition of the stock other than "by bequest or inheritance" is prohibited. If this is the case, you'll have to dispose of your closely-held stock through your will.
Transferring stocks and bonds into a living trust can be tricky. For instructions specific to your situation and your securities, get help from a qualified financial planner or estate planning attorney. You may face a challenge if:
The beneficiary whose stock was redeemed probably entered into a "10-year agreement" for tax purposes, and so re-acquisition of the stock other than "by bequest or inheritance" is prohibited. If this is the case, you'll have to dispose of your closely-held stock through your will.
Questions for Your Attorney
