Large gifts and inheritance transactions are a great way to pass on wealth, but they do come with responsibilities. It's important to understand that, just like there are IRS regulations, there are SEC filing requirements that need to be met for these transactions to be valid and to avoid hefty fees.
The Securities and Exchange Commission (SEC) has established a set of rules and financial disclosure requirements regarding gifting or inheritance transactions involving large amounts of money or securities. These rules require the person receiving the gift to follow certain filing requirements. Doing so helps report vital information, such as changes in ownership status, to the SEC. These filing requirements mainly apply when a large amount of money or securities is passed from one individual to another without involving any exchange of payment by either party. Below is everything you need to know about staying in compliance when receiving large gifts and inheritance transactions.
Receiving Securities
Securities refer to stocks, bonds, and other investments that are traded on the market. If you receive a gift or inheritance involving securities, there are several steps to follow in order to remain compliant. While there are no inheritance tax laws that say your securities need to be taxed, you do need to file certain forms. Below are some steps to take to avoid fines, penalties, and to ensure investors are properly informed.
File Form 4
File Form 4 with the SEC as soon as possible after receiving the gift or inheritance. Form 4 is used to report any changes in ownership when an insider inherits securities or establishes a trust that holds their company's securities.
Some information you might find on Form 4 includes:
- The date of the transaction
- Details about the securities (e.g., type, quantity, price)
- Names of all parties involved in the transaction
- Gift valuation
- Addresses of all parties involved in the transaction
- Ticker or trading symbol, which is the stock symbol for publicly traded stocks
You might be asking yourself, what exactly is an insider, and do I qualify? An insider is someone who has access to confidential information about a company, such as an executive, director or major shareholder.
More importantly, insiders must report any transactions involving their company's securities. This can include gifting, inheriting, or selling securities. The purpose of filing Form 4 is to help inform investors and the public about ownership changes related to the issuer (company).
Some examples of insiders can include:
- Family members of the insider
- Entities that are controlled by an insider
- Employees who have access to confidential information
The form also helps make sure that insiders don't take advantage of their privileged position in any way. For example, they can't use inside information to trade securities or give out stock options.
Other possible issues insiders can face include:
- Making false or misleading statements about the company to manipulate stock prices
- Engaging in illegal insider trading
- Violating SEC rules and regulations regarding the disclosure of material information.
It's important to file Form 4 correctly and promptly to avoid any penalties or fines. If you have any questions about filing requirements for receiving a gift or inheritance, it's best to consult a professional filing service to help you stay on track and make sure any gifted securities are well documented.
File Schedule 13D and 13G
In addition to reporting gifts as an insider, it's also vital to report any changes in beneficial ownership. Let's say you become a beneficial owner because your spouse or parent gives you a large gift of securities. In this situation, you must file Schedule 13D and/or 13G to report your ownership.
A beneficial owner is anyone who owns enough stock in a company to have an influence over any major decisions, such as electing directors or voting on mergers. By filing Schedule 13D and/or 13G, you let the SEC know who has control of the stock, and it also informs investors of any changes in beneficial ownership.
Schedule 13D is used when an individual acquires more than 5% of shares outstanding in an issuer (company). The filing must include the same information as Form 4, plus additional information like the source of funds used to purchase the securities.
Schedule 13G is also used when an individual acquires more than 5% of shares outstanding in an issuer. However, you would only file a 13G if you have no intention of influencing the management of the company.
The Bottom Line
In conclusion, there are a few SEC filing requirements you must meet when receiving large gifts and inheritance transactions. Make sure to file Form 4 with the SEC as soon as possible after receiving the gift or inheritance and any applicable Schedule 13D or 13G depending on your ownership percentage. With proper filing, you can ensure that investors are properly informed and that you remain compliant with SEC regulations. These are just the basics of filing requirements; for any additional questions or help, it's best to consult a professional filing service that can provide guidance on gift and estate tax planning.
Form 4, Reporting Owners