October 14, 2019

October 14, 2019

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Staff Addresses Family Trusts With Multistate Trustees

When the Securities and Exchange Commission two years proposed amendments to Rule 147 and adoption of Rule 147A, I commented on an issue that I foresaw with respect to family and other non-business trusts:

Proposed Rule 147 does not address how the residency of non-business trusts should be determined. Many individual investors purchase securities by means of family trusts. These trusts are estate planning devices. They are not separate legal entities but a description of a fiduciary relationship between the trustee and the property involved. Because residency is a critical condition to the proposed rule, the Commission should specify that the residency of non-business trusts is to be determined by the residence of the trustees. If a trust has more than one trustee, then all trustees must be resident in the state or territory in which the offering is made in reliance upon the exemption.

(Footnote omitted).  The SEC incorporated my recommendation when it adopted the final rule amendments and new Rule 147A:

In addition, as suggested by one commenter [me],we are adding an instruction to the requirement as to the residency of the purchaser stating that a trust that is not deemed by the law of the state or territory of its creation to be a separate legal entity should be deemed to be a resident of each state or territory in which its trustee is, or trustees are, resident.

(Footnotes omitted).

Last week, the SEC staff adopted a more lenient position on trusts with trustees in multiple states than I had proposed.  The staff included the following among a cluster of new and revised Compliance and Disclosure Interpretations issued last week:

541.03 A family trust that is not deemed to be a separate legal entity has two trustees – only one of which resides in a state where a Rule 147 offering is being made. Following Securities Act Release No. 33-10238, because one of the trustees resides in the state where the Rule 147 offering is being made, the issuer in the Rule 147 offering may offer and sell securities to the trust in the Rule 147 offering. [Sept. 20, 2017]

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...