Registered: Jun 2008
09-26-12 05:36 AM
Quote from starvingtrader:
I was wondering if anyone has had any bad experiences with either setting up or trading through a trust account.
1) If I change my individual account to a trust account, could this be done while maintaining my open positions (stock and option trades that I hold for 3-60 days)? or is it best to go into cash for a couple of weeks just for account for paperwork problems?
2) Anyone have any experience with a trust account through OptionsHouse specifically?
3) Are there any restrictions on stuff (like margin, shorting, etc) that are common with non-individual accounts?
4) Does a trust have to pay any special fees (e.g. Professional Subscriber data fees)?
5) Are there any random problems people have had?
What kind of trust account? An IRA? A 401k? A defined benefit pension plan?
(1) A trust is a different legal entity so you cannot transfer positions at all.
(2) No but I think you might consider setting set up your own trust with Millenium or other trustee - then ANY broker will accept the account as a regular account.
(3) You cannot borrow (including stock margin) in a tax-exempt entity unless you pay UBIT tax. Futures are ok *if* authorized by the terms of the trust (the trustee may balk).
(4) Some brokers, like IB and others, do not require you to pay professional fees if you are the sole beneficiary.
(5) I have opened a number of trust accounts for my company's pension plans. In this case, I am the trustee. I do use an IRS approved prototype plan and a pension advisor.
Oh do not personally guarantee the account to avoid possible disqualification for a "prohibited transaction". Some brokers ask for this. You have to be very knowledgeable about the law to open an account to be able to quote IRS code sections etc. to argue/satisfy them or even fill in the application forms.
In your case you probably will use Millenium or Equity Trust etc. and they will look after the details and charge you large fees for that! Also you will have a 3 way negotiation between you, the trustee, and the broker which may be time-consuming and troublesome - the trustee may not allow you to do certain types of trades etc.
You need to get familiar with the legal basics of trusts and tax before doing anything. Otherwise you will not understand what you are doing. It is not something you can casually "buy".