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transfer of stock to partners
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Two club members indicated they would like to reduce their holdings in the club with either cash or stock. The partners agreed that stock would be used for the partial withdrawals. The question are;
1. Can stock be used for a partial withdrawal?
2. What are the advantages and disadvantages (Club & Partner) to using stock for the withdrawal?
3. Which stocks should be considered for the transfer (best performing or least performing)?
4. What would be the procedure for transfering from Broker to individuals account?
Thank you for any information you can provide.
Tony A
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1. Yes, stock transfers can be used to pay a partial withdrawal.
2. For a partial withdrawal most of the benefit of using stock to pay goes to the club. It gets to use appreciated assets at market value to pay the member. The club members also get to defer their share of any gain from these appreciated stocks to when they withdraw. The club's cost basis in these stocks is transferred to the member receiving the stock. This is different than a full withdrawal where the partner's adjusted basis in the club gets transferred to the partner. This gives the partner more control of how much and when gain is realized when the shares are sold in a full withdrawal.
Because of the different rules on transferring cost basis in partial withdrawals it is possible for a member receiving a partial stock withdrawal to realize a gain when the shares are sold that they may not have realized if they had received only cash. Sounds illogical but this is a bit of a quirk in partnership tax law.
3. The best stocks to transfer for the club in a partial withdrawal are those with the highest unrealized gains. For the partner receiving the stock it is more advantageous to receive shares with a higher cost basis. The interests of the 2 parties do not align as well in this situation as they do for full stock withdrawals.
Other issues can come into play such as balancing the club portfolio but these are more specific to the club.
4. The transfer process may be a little different with each brokerage firm so check with yours to get details. The general process goes like this:
The receiving partner must have a brokerage account. If with the same firm as the club the transfer is often free. If to an account with a different firm there may be a charge for the transfer.
Decide on which company or companies and how many shares to transfer.
Give written instructions to your broker. List company, # of shares and identify specific blocks (or lots) from which the shares are to be taken. For example, 10 shares of AAPL from tax lot purchased 23 April 2011. If you do not specify a specific tax lot the broker will likely use the First-in-first-out method and transfer your oldest shares.
Also include the name of the person receiving the shares and their account number and the name of the firm where the account is located.
Clubs have informed me transfers between accounts at the same firm can be completed in a few days. If you transfer to an account at a different firm than the club's then expect the transfer to take longer. It may even take 2 weeks or more.
The MYiclub accounting platform does have a withdrawal calculator to help you decide the best way to fund both partial and full withdrawals. Click on the Utilities tab in the left column. The link to the withdrawal calculator will be at the top of the list in the main (central) window. The link is also available when you choose the Withdrawal link in the Members section. It will be one of the options just below the page title.
Russell Malley
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 2 users thanked Pawche for this useful post.
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transfer of stock to partners
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