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Funding Trusts with Stocks, Promissory Notes, and Limited Partnership Interests

Many grantors set up trusts with the intent to fund them with non-publicly traded securities, such as privately held stocks, promissory notes, and limited partnership interests.

Grantors use these assets to avoid probate issues and maintain privacy or to remove items that have the potential for vast increases in worth over time from their estates and estate tax returns. Each type of security requires a different process for documentation of the transfer.

When moving these assets from personal ownership into a trust, it’s important that you as trustee carefully document the transfer’s completion. The document should show the stock certificate in the trustee’s name, the assignment of the promissory note to the trustee, or the limited partnership interest in the trustee’s name.

Be sure to determine what you need to do to change ownership for these three types of property:

  • Privately held stock: With this stock, follow guidelines for reregistering stock certificates. Complete separate stock powers, and remember, you can’t register privately held stock in street name. Therefore, the corporate clerk, secretary, or the corporation’s attorney must type up new stock certificates in the name of the trust.

  • Promissory notes: A grantor may lend money to a third party and decide to place the promissory note into the trust. He or she may transfer the note to the trust by executing an assignment of the note to the trustees. It’s a simple document, but case specific. You can ask whoever drew up the note to draft the assignment.

  • Non-publicly traded limited partnerships: These are a popular way of owning real estate with a group of like-minded investors. To transfer a limited partnership interest into a trust, the grantor must notify the general partner in writing. An assignment of partnership interest is a more formal way to accomplish the transfer, but a letter signed and dated by the owner of the interest should work. The general partner will then change the records of the partnership.

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