Call options are financial contracts that give the option holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period. These can be valuable assets, and you may wish to transfer them into a trust for the same reasons as any other asset: protection, tax benefits, and avoiding probate. Here's how.
Understanding Trusts
A trust is a legal arrangement where one party, known as the trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts can be revocable or irrevocable, with each type offering its unique benefits and drawbacks.
Reasons to Transfer Call Options into a Trust
The main reasons to transfer call options into a trust are to protect them from legal claims, to potentially receive tax benefits, and to ensure they are distributed according to your wishes after your death without the need for probate.
How to Set Up a Trust for Call Options
- Choose the type of trust: You must decide between a revocable trust, which can be altered or cancelled, and an irrevocable trust, which cannot be changed without the permission of the trustee.
- Select a trustee: The trustee is the person who will manage the assets in the trust. They should be someone you trust implicitly.
- Create the trust document: The trust document outlines the terms of the trust, including the beneficiaries and how the assets should be managed.
- Fund the trust: This is the step where you move your assets, in this case, the call options, into the trust.
Process of Transferring Call Options into a Trust
- Appraise the call options: The first step is to determine the fair market value of the call options. This is often done by a professional appraiser.
- Transfer the call options: The call options must be transferred into the name of the trust. This is usually done by filling out a transfer form provided by the brokerage where the options are held.
- Change the beneficiary designation: If the call options have a death beneficiary designation, it should be changed to the trust.
- Document the transfer: Keep a record of the transfer, including a copy of the transfer form and any correspondence with the brokerage.
Getting Professional Help
Transferring call options into a trust can be a complex process, particularly when it comes to valuing the options and dealing with the brokerage. It's advisable to seek professional help from a lawyer or financial advisor. They can guide you through the process, help you manage the trust, and address any potential legal or financial issues that may arise.
Conclusion
While the process may seem complicated, transferring call options into a trust can provide important benefits. With careful planning and the right professional help, you can ensure your assets are protected and distributed according to your wishes.
