Entity Investments
In addition to holding publicly traded assets, your client's Sterling account may also purchase certain entity investments. To direct an entity investment within a Sterling account, please provide all the necessary documents on Sterling's Entity Direction of Investment Form.
The following Entity FAQ will help you understand the specifics of processing entity investments within your self-directed Sterling account.
- What types of entity investments can be held within a Sterling Trust account?
- Are there any types of investments that Sterling Trust will not process?
- Can a Sterling Trust account invest in an entity that my client or his/her family member owns or controls?
- What is a prohibited transaction?
- What is Unrelated Business Taxable Income?
- How are capital calls from a limited partnership or limited liability company handled?
- Will Sterling assist with setting up a limited partnership, limited liability company or other entity?
What types of entity investments can be held within a Sterling account?
Types of private entity investments that Sterling will process include (but are not limited to) stock of C-corporations, limited partnerships, limited liability companies, land trusts, joint ventures, unit investment trusts and corporate debt.
Are there any types of investments that Sterling Trust will not process?
Types of private entity investments that are not administratively feasible for Sterling to process include (but are not limited to) single-member entities, general partnerships, stock of S-corporations and certain foreign-based investment entities.
Can a Sterling Trust account invest in an entity that my client or his/her family member owns or controls?
If your client's IRA or Qualified Plan invests in an entity that he or she, or certain family members own or control (whether controlled individually or as an officer of a corporate general partner, managing member, etc.), the transaction could possibly be a prohibited transaction under Internal Revenue Code Section 4975. If your client, family members or disqualified persons collectively own 50% or more of the entity, Sterling will not process the investment.
What is a prohibited transaction?
In general, Internal Revenue Code Section 4975 defines a prohibited transaction as a transaction between a plan (your client's account) and a disqualified person. In general, “disqualified persons” are defined to be the Account Holder, other fiduciaries, certain family members (lineal descendents and spouses of lineal descendents) and businesses under the Account Holder’s (or disqualified person’s) control. Please review the code for specific information and definitions. Other useful resources are Publication 560 and 590.
What is Unrelated Business Taxable Income?
Limited partnerships, limited liability companies and other entities that carry on an unrelated business or borrow funds to finance the acquisition of property may generate Unrelated Business Taxable Income (UBTI). UBTI is generally reported on Schedule K-1 issued by the entity. If the UBTI attributable to your client's account exceeds $1,000 for any taxable year, IRS Form 990-T must be filed along with the appropriate amount of tax, payable from the account. Sterling does not monitor UBTI and does not prepare Form 990-T except as a supplemental service for an additional fee. If the tax is applicable, you must prepare, or have prepared, Form 990-T and forward to Sterling along with written authorization to pay the tax from your client's account. If your client is required to file Form 990-T, he or she must apply for and utilize an Employer Identification Number (“EIN”). Sterling’s EIN or your client's Social Security number cannot be used. For more information on UBTI, please refer to IRS Publication 598 and/or consult with a tax advisor.
How are capital calls from a limited partnership or limited liability company handled?
Sterling must receive written authorization to send a capital call from your client's account. Please provide Sterling with a copy of the capital call assessment along with a signed letter of instruction to send the amount of the capital call from the Sterling account to the entity.
Will Sterling assist with setting up a limited partnership, limited liability company or other entity?
No. As a directed custodian, this is not a service that Sterling provides. Your client will need to rely on an attorney or tax advisor with respect to the entity’s formation and any other legal or tax advice.