For a variety of estate planning and asset management purposes, many high net worth families hold their assets in trusts, family investment vehicles, or charitable foundations. If assets held in this manner include interests in hedge funds, private equity funds, or other “unregistered” securities, it is important to ensure that the entity is qualified to hold such investments.
Certain exemptions under the federal securities law require that investors in private funds and other unregistered securities qualify as “accredited investors” or “qualified purchasers.”
What is an Accredited Investor?
Accredited investors include financial institutions and other entities that meet certain requirements, as well as certain officers, directors, and other insiders of the entity offering the securities. They also include individuals with either:
A trust (including a foundation organized as a trust) can qualify as an accredited investor in one of three ways:
Family investment vehicles are accredited investors if their assets exceed $5 million and they were not formed for the specific purpose of making the investment in question. Alternatively, they can qualify as accredited if all of their equity owners are accredited.
What is a Qualified Purchaser?
Individuals are qualified purchasers if they have at least $5 million in investments. Other qualified purchasers include:
Determining whether a family entity is an accredited investor or a qualified purchaser can be complex, as there are nuances in the definitions. The information provided is intended to be a guideline — your specific circumstances could vary from the general rules. If you have questions, you can reach me at SDitman@BerdonLLP.com or contact to your Berdon advisor.
Scott T. Ditman, CPA/PFS, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.