How to Add Stocks to a Grandchild's Trust

By John Cromwell

If you want to provide for your grandchildren's financial security, a trust is often the best option. With a trust, the assets are managed by a responsible third party, or trustee, but the grandchildren get to use the trust property as the trust's beneficiaries. If a trust for your grandchildren already exists, it might be easier to contribute assets such as stock to the pre-existing trust than creating a new trust.

If you want to provide for your grandchildren's financial security, a trust is often the best option. With a trust, the assets are managed by a responsible third party, or trustee, but the grandchildren get to use the trust property as the trust's beneficiaries. If a trust for your grandchildren already exists, it might be easier to contribute assets such as stock to the pre-existing trust than creating a new trust.

Step 1

Obtain a copy of the trust agreement. A trust agreement defines how the trust will operate, who the beneficiaries and trustees are and under what conditions the trust assets are distributed. Trust agreements are not generally made public, so you will need to request a copy from your grandchildren’s parents or another party who would have access. If you set up the trust, you can request the trust agreement from your attorney.

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Step 2

Review the agreement to ensure that conditions where trust property will be distributed to the beneficiaries are the same as how you want your stock to be used. A common mistake is transferring property into a trust that distributes its assets subject to terms different than what the donor wanted.

Step 3

Determine the identity of the trustee. The trustee is the one who holds the property legally on behalf of the trust. Contact her regarding the impending transfer so she is aware of what is coming. Ask to what financial institution you should send the stock, as well as for any necessary trust account information needed to make the transfer.

Step 4

Calculate the value of the stock you wish to transfer. The value of the stock is what it would sell for as of the day you make the transfer.

Step 5

Consider the gift tax implications. There's a limit to how much stock you can give per year per grandchild without incurring federal gift tax. If you wish to donate stock that is worth more than your annual gift tax limit of $13,000, consider spreading the gift over a few years to minimize your gift tax liability.

Step 6

Transfer the stock to the trustee for the trust. You will need to contact the financial institution holding the stock and have it transfer the stock to the trustee. Generally, each financial institution will have specific documentation you will need to complete to complete the transfer. Generally you will need to draft a letter of transfer, instructing the institution to transfer the stock to the trust. Be sure to stipulate in the letter that the stock is being transferred to the trustee in that role, and that she is to hold the stock on behalf of the trust. You will also need to prove via documentation that you are authorized to transfer the stock.

Step 7

Retain the receipt of the transfer for your personal documentation and tax records.

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How to Set Up a Joint Revocable Trust

References

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