This article is a continuation of a series of “how tos” for funding various types of assets. The scope of this article will review how to fund publicly traded stocks, bonds and investment accounts to a client’s revocable living trust.
Stock
If your client has a stock certificate, the stock can be transferred to the client’s revocable living trust by a stock transfer agent. The stock transfer agent should be listed on the back of the stock certificate. If the stock certificate has a Stock Power on its reverse side, the Stock Power should be completed and should name the trust and trustee(s). Note that the Stock Power will likely require that the client’s signature be “guaranteed”. When a “guarantee” is required, the best practice is to make sure that the client’s signature is witnessed by a proper representative of a financial institution (bank, trust company, or other financial institution) that is a member of the Medallion Guarantee Program. A notary seal will not suffice if a “guarantee” or a “medallion guarantee” is required by the institution. If the stock certificate does not have a Stock Power on its reverse side, a separate Stock Power must be prepared and “guaranteed”. In order to transfer the stock to the revocable living trust, you should provide the following to the stock transfer agent: the stock certificate with the completed and “guaranteed” Stock Power and a copy of the Affidavit of Trust.
Today it is becoming much more common for clients to have their individual stocks in something called a “Street Name Account” or “Street Account”. In such situations, the client will have an account with a brokerage firm and the brokerage firm holds the stock certificates for the client. In fact, if a client doesn’t have a “Street Account” and has the physical stock certificates, you may want to discuss the option of opening up a “Street Account” in the name of the trust and putting the stock certificates in it so that it can be administered and kept organized more easily. Obtaining a receipt of the stocks given to the brokerage firm is crucial since this will be the client’s only proof of the stock transfer until the client starts receiving account statements from the brokerage firm. If the stock is in a “Street Account”, you will need to obtain the proper forms from the brokerage firm so that the “Street Account” can be transferred to the revocable living trust. In addition to the company specific forms (which will likely require a “guarantee”), you will also need to provide an Affidavit of Trust to the brokerage firm. The brokerage firm may require that the client’s account be closed and a new account be opened in the name of the trust.
If your client has “lettered” or “restricted” stock, this is stock that has restrictions regarding transfer. The restriction should be listed on the stock certificate. If your client has this kind of stock, you will need to check with the corporation to see if the stock can be transferred to the client’s revocable living trust, and if so, what the proper procedure would be.
Stock options may have special income tax implications depending on their classification. As such, stock options will be the subject of an article later in this series.
Bonds
You can transfer publicly-traded bond certificates to the client’s revocable living trust in the same manner as stocks — however, instead of using a Stock Power you will use a Bond Power. If the bonds are held in an account, you will need to obtain the necessary forms from the financial institution so that the account can be transferred to the revocable living trust. Again, a “guarantee” will likely be required and a copy of the Affidavit of Trust should be provided.
If your client still has “bearer bonds” in their possession, these bonds can be transferred directly to the client’s revocable living trust through the use of an assignment. Since “bearer bonds” are treated as cash in the hands of the holder, your client should keep the bonds in a safe location since the assignment will no longer apply if the bonds end up in someone else’s possession.
A client can transfer U.S. Treasury savings bonds to a revocable living trust without income tax implications if the client was the purchaser of the bonds. Treas. Reg. §1.4541(a)(iii); Rev. Rul. 79-409, 1979-2C.B.208; Rev. Rul. 58-2, 1958-1C.B. 236; PLR 909053; PLR 7826024 PLR 7729003. The U.S. Treasury requires the use of Form PD F 1851 to transfer bonds to a revocable living trust. A separate Form PD F 1851 should be completed for both E series and H series bonds – the U.S. Treasury will not accept two different series of bonds listed on the same form. If there is more than one person named on the bond, the first person listed is considered to be the primary bond owner and must sign the Form PD F 1851 on the first signature line. Note that the owner’s signature must be “guaranteed”. If you have multiple different owners on a bond series, a separate Form PD F 1851 will need to be completed for each group of owners. In order to fund the bonds to the revocable living trust, you will need to send in the original bonds with the completed U.S. Treasury forms so that the U.S. Treasury can issue the re-titled bonds. In order to avoid possible mistakes, it is best to have the new bonds sent to the client directly. I have seen the U.S. Treasury mistakenly list on the bond’s face the address of where the bonds are being sent rather than the client’s actual address. Additionally, it is important to keep a copy of the submitted Form PD F 1851 as well as the actual bonds so that you can confirm that the U.S. Treasury did not misplace a bond. If you find that a bond is missing, you will need to request that the U.S. Treasury put a “trace” on the bonds.
If the U.S. Treasury bonds are held in a Legacy Treasury Direct account, you should use Form PD F 5178 E in order to change the account registration to the revocable living trust. You will find the Form PD F 1851 and the Form PD F 5178 E at www.treasurydirect.gov. You will also find complete instructions on the forms as well.
Brokerage and Mutual Fund Accounts
A client can also transfer any brokerage and mutual fund account they own to their revocable living trust. If there are multiple owners on the account, the first person listed on the account is considered to be the primary account owner and the account will be under their social security number. With multiple account owners, it will be crucial to analyze how the funding should be achieved if the client wants the account transferred to their revocable living trust. If the owners are citizen spouses, then it will be a matter of determining whose trust for estate tax purposes the account should be funded to. If the account owners are non-spouses or if there is a non-citizen spouse, it will be important to divide up the account based on each owner’s contribution prior to funding, or if the account is not to be divided up among the owners then to analyze if there are any gift tax implications.
Each institution will have its own specific change of ownership form. You can oftentimes find the necessary forms online. In order to fund the brokerage or mutual fund account, you will need to submit the completed company specific change of ownership form (which may or may not require a “guarantee”) and an Affidavit of Trust to the financial institution. Note that the financial institution may require that the client’s account be closed and a new account opened in the name of the trust. Finally, if the client previously had check writing ability and still wants this, you will want to make sure that the relevant portion of the form is completed so that check writing can continue.
