NewCo, LLC is conducting an offering under Rule 506(c) and receives a subscription from the Smith Family Trust. The Trust could be an accredited investor under any of four rules.

Rules for All Trusts

Rule #1: The Trust is an accredited investor if the trustee or co-trustee is a bank, insurance company, registered investment company, business development company, or small business investment company.

Rule #2: Alternatively, the Trust is an accredited investor if:

• It has more than $5,000,000 in assets;
• It was not formed for the purpose of investing in NewCo; and
• Its trustee has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of a prospective investment.

Rule for Revocable Trusts

Rule #3: If the Trust is a revocable trust, it is an accredited investor if:

• Mary Smith, the grantor, is herself an accredited investor;
• The Trust may be amended or revoked at any time by Ms. Smith; and
• The tax benefits of investments made by the trust pass through to Ms. Smith.

Rule for Irrevocable Trusts

Rule #4: If the Trust is an irrevocable trust, it is an accredited investor if:

• Mary Smith, the grantor, is herself an accredited investor;
• The trust is a grantor trust for Federal income tax purposes and Ms. Smith is the sole funding source;
• Ms. Smith would be taxed on all income of the trust and would be taxed on the sale of trust assets;
• Ms. Smith is the trustee with sole investment discretion;
• The entire amount of Ms. Smith’s contribution plus a rate of return would be paid to the grantor prior to any other payments;
• The Trust was established by Ms. Smith for estate planning purposes; and
• Creditors of Ms. Smith would be able to reach her interest in the Trust.

Simple, right?

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