Do your assets include unregistered securities, such as restricted stocks or interests in hedge funds
or private equity funds? If so, it’s important to consider the securities laws that may be involved in
various estate planning strategies.
Potential estate planning issues
Transfers of unregistered securities, either as outright gifts or to trusts or other estate planning
vehicles, can raise securities law issues. For example, if you give restricted securities to a child or
other family member, the recipient may not be able to sell the shares freely. A resale would have to
qualify for a registration exemption and may be subject to limits on the amount that can be sold.
If you plan to hold unregistered securities in an entity — such as a trust or family limited
partnership (FLP) — be sure that the entity is permitted to hold these investments. The rules are
complex, but in many cases, if you transfer assets to an entity, the entity itself must qualify as an
“accredited investor” under the Securities Act or a “qualified purchaser” under the Investment
Company Act. And, of course, if you plan to have the entity invest directly in such assets, it’ll need
to be an accredited investor or qualified purchaser.

Accredited investors include certain banks and other institutions, as well as individuals with either
1) a net worth of at least $1 million (excluding their primary residence), or 2) income of at least
$200,000 ($300,000 for married couples) in each of the preceding two years.
A trust is an accredited investor if:

  •  It’s revocable, the grantor is an accredited investor and certain other requirements are met,
  •  The trustee is a bank or other qualified financial institution, or
  •  It has at least $5 million in assets, it wasn’t formed for the specific purpose of acquiring the
    securities in question and its investments are directed by a “sophisticated” person.
FLPs and similar family investment vehicles are accredited if 1) they have at least $5 million in
assets and weren’t formed for the specific purpose of acquiring the securities in question, or 2) all
its equity owners are accredited.
Qualified purchasers include individuals with at least $5 million in investments; family-owned
trusts or entities with at least $5 million in investments; and trusts, not formed for the specific
purpose of acquiring the securities in question, if each settlor and any trustee controlling
investment decisions is a qualified purchaser.
Complex rules
Federal securities laws and regulations are complex. Indeed, a full discussion of them is beyond
the scope of this article. If your assets include unregistered securities, consult with your advisors to
be sure your estate planning strategies comply with applicable securities requirements.
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