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Stocks
In General
Changing Ownership
vs. Transfer on Death Designation
Steps in Changing Ownership of Stock
Changing Ownership of Stock
Identifying the Transfer Agent
CAUTION - Stock Held for a Long Period of Time
Signature Guarantee
Mailing the Stock Certificates
Time Expectations
Opening a "Street Account"
Incentive Stock Options
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
Note: Appreciation and gratitude is extended to Mr. Jeff
Dundon, Esq., who generously contributed the research and content of this Legal Bulletin dealing with Incentive Stock Options.
In General: Stock certificates that a person holds in their
individual capacity are generally funded by either retitling the stock in the
name of the trust or by adding a Transfer on Death designation to the stock so
that it passes to the trust on death. If a person holds their stock in a
brokerage account, then the assets are funded in accordance with the
instructions contained in the technical bulletin on Investment Accounts.
Changing Ownership
vs. Transfer on Death
Designation: Perhaps
the most conservative method of funding stock certificates is to formally change
the ownership of the stock to the living trust. A Transfer on Death (TOD)
designation will result in the certificates being retitled after death and
generally should not trigger a probate proceeding to effectuate the transfer.
However, a major limitation of a TOD designation is that it provides no
protection for the client in the event of the client's incapacity. A financial
power of attorney may help to render some protection in the event of a
disability, provided the transfer agent accepts the power of attorney.
In the event a TOD designation is utilized, you may wish to
consider sending a copy of the financial power of attorney to the transfer agent
requesting that they review the document. You may also request
that they provide some statement in writing that they will honor that power of
attorney at some point in the future. Should you need any assistance with
these matters, we recommend that you contact an estate planning attorney with
experience in trust funding.
Steps in Changing Ownership of
Stock: The steps in
changing the ownership of stock are as follows:
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Identify the stock transfer agent
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Prepare a Stock Power naming the trust as the new owner*
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Prepare an instruction letter to the stock transfer agent
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Secure a guaranty of the owner's signature on the stock
power
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Send the signature guaranteed stock power and stock instruction letter to
the transfer agent.
*Note: For help in drafting a Stock Power and
changing ownership of stock, contact an estate planning attorney with
experience in trust funding.
Changing Ownership of
Stock: Stock is generally retitled by
contacting the transfer agent for the corporation and requesting that the
ownership be changed to the name of the living trust.
Identifying the Transfer
Agent: Often times, the most
difficult aspect of changing the ownership of stock is identifying who the
transfer agent is. Sometimes the name of the transfer agent may be printed on
the back of the stock certificate. In the event no transfer agent is identified
on the stock certificate, the easiest way to ascertain the agent's name is to to determine if
you are in possession of any
correspondence from the corporation or the transfer agent identifying the name
and address of the transfer agent. If you cannot locate the stock transfer
agent, we recommend you contact the corporation or an estate planning attorney
with experience in trust funding.
CAUTION - Stock Held for a Long Period of
Time: If the client
has held the stock for a long period of time, the transfer agent named on the
back of the stock certificate may no longer be the current transfer agent.
It
may be prudent to contact the person or the entity identified as the transfer
agent on an old stock certificate to confirm that they are still the current
agent. This step will prevent inadvertently sending a request to change
ownership to the wrong agent. It will also save time and reduce the risk that
the certificate may be lost. If the agent listed in no longer serving, they
should be able to provide you with the name and address of the current stock
transfer agent.
Signature Guarantee: Most transfer agents will not accept a
stock certificate for retitling unless the owner's signature has been formally guaranteed.
A signature guarantee is similar to having a signature notarized;
however there are additional requirements for a signature to be guaranteed.
Moreover, there are different types of signature guarantees. The most common
type is the Medallion Signature Guarantee. Most stock transfer agents will
require that signatures be Medallion Signature Guaranteed. Accordingly,
your should not execute the stock power
until you are in the presence of the signature guarantee. There generally is not a charge
to have a signature guaranteed. Should you need any assistance in
identifying a local Signature Guarantee in your area, contact an estate
planning attorney with experience in trust funding.
Mailing the Stock
Certificates: It is prudent to send the
stock power and stock certificates to the transfer agent by certified mail,
return receipt requested as well as to have the contents insured.
Time Expectations: The time it takes to receive a re-issued
stock certificate will vary from transfer agent to transfer agent. On average,
it will generally take anywhere from 30 days on the short end to as long as six
months to receive the re-issued stock certificate. This can be a particular
problem the stock owner has a terminal medical condition where time is of the
essence. In these types of situations you may wish to consider utilizing a
street account (described below) to effectuate a more immediate transfer.
Opening a "Street Account": A
Street Account is an
account opened with a brokerage firm that physically holds the stock
certificates. There is usually a nominal charge for this service.
Ascertained account fees prior to embarking on this strategy. There are several
benefits to opening a street account.
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Most brokerage firms consider the stock to be in the name
of the trust on the same date that they take physical possession of the stock
certificates. This has obvious advantages for clients in terminal medical
situations.
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The brokerage firm will provide periodic statements
tracking the current value of the stock as well as any stock splits that may
occur. This will be helpful in calculating any capital gains tax liability
should the client decide to sell the stock at some future date.
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The brokerage firm may offer additional services such as
credit card, debit card, or ATM cards that would allow the client to borrow
against the value of the stock at competitive interest rates.
Incentive Stock
Options:
Incentive Stock Options are a type of benefit
offered by corporations to their employees. These options are provided for in
the Internal Revenue Code Section 422 and they receive special tax treatment if
the statutory rules are followed. Most of the rules involved will be out of your
control. The Incentive Stock Option plan will either meet
these tax requirements or not meet them based on the work of the employee benefits
or tax counsel involved at the corporate level.
If an employee meets the requirements established by Congress
for this program, then the employee does not recognize any income for the
difference in the price he paid and the fair market value of the stock on the
date the employee pays for the stock at the option price. As a result, the
employee will then have low basis stock, but it will be eligible for capital
gains treatment when later sold. This can be a significant benefit for highly
compensated individuals.
The two things that you need to be concerned about are the
requirement that the options be exercised within a ten year period and that your
funding plan does not cause a "disqualifying disposition".
Because incentive stock options create complex estate planning and trust funding
issues, extreme caution should be used. We strongly recommend that you
seek customized counsel on these matters from a qualified estate planning
attorney.
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