transfer of assets assignment

Asset Transfer Agreement

Jump to section, what is an asset transfer agreement.

An asset transfer agreement is a legal document between a seller and a purchaser that outlines the terms under which the ownership of property will be transferred. Assets aren't considered legally transferred until it is written in a legal agreement and signed by both parties.

An asset transfer agreement can provide for all aspects of an acquisition, such as price, assignee and other rights and obligations relating to title, warranty and indemnities. It also includes provisions for changes in value of currency, inflation adjustments or similar items.

Asset transfer agreements can be used for a variety of assets, but are commonly used for business acquisitions.

Common Sections in Asset Transfer Agreements

Below is a list of common sections included in Asset Transfer Agreements. These sections are linked to the below sample agreement for you to explore.

Asset Transfer Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.1 2 dex101.htm ASSET TRANSFER AGREEMENT , Viewed September 26, 2021, View Source on SEC .

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G'day, my name is Michele! I work with startups, entrepreneurs and small/medium-sized businesses across the country in a wide array of industries. I help them with all of their ongoing, daily legal needs. This includes entity formation, M&A, contract drafting and review, employment, asset sale & acquisition, and business sales or shareholder exits. I'm half-Australian, half-Italian, and I've lived the last 20+ years of my life in America. I've lived all over the USA, completing high school in the deep south, graduating cum laude from Washington University in St. Louis, and then cum laude from Georgetown University Law Center. After law school I worked for the Los Angeles office of Latham & Watkins, LLP. After four intense and rewarding years there, I left to become General Counsel and VP of an incredible, industry-changing start-up called Urban Mining Company (UMC) that manufactures rare earth permanent magnets. I now work for Phocus Law where I help run our practice focused on entrepreneurs, startups, and SMEs. I love what I do, and I'd love to be of help! My focus is on providing stress-free, enjoyable, and high-quality legal service to all of my clients. Being a good lawyer isn't enough: the client experience should also be great. But work isn't everything, and I love my free time. I've been an avid traveler since my parents put me on a plane to Italy at 9-months old. I'm also a music nut, and am still looking for that perfect client that will engage me to explain why Dark Side Of The Moon is the greatest album of all time. Having grown up in a remote, and gorgeous corner of Australia, I feel a strong connection to nature, and love being in the elements.

Experienced and business-oriented attorney with a great depth of contract experience including vendor contracts, service contracts, employment, licenses, operating agreements and other corporate compliance documents.

Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.

My name is Elexius. I’ve been practicing since 2016. I began my career doing defense work for insurance companies. I handled worker’s compensation cases, insurance subrogation claims and a number of related employment issues including wage and hour disputes, resignation, termination and release of claims. I also handled employee contract matters and revised contracts as needed for my clients. In my current role I draft contracts and related agreements, including cease and desist, letters of understanding, and various notices. I also handle contractual interference issues.

I have been practicing law since 2010 focusing on estate planning, probate, corporate & business, and family law matters. Prior to the practice of law, I had extensive experience as a financial advisor, business consulting, and information technology.

I’m the Managing Attorney at The Coaxum Firm LLC, a small firm located in Alabama that handles Family Law, Criminal Defense, and Personal Injury cases. My law partner is my older brother, Louis Coaxum, and we’ve been practicing together as a firm for over 8 years.

Jerry has been practicing law in Hawaii for over twenty years which includes the areas of labor and employment.

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Legal Templates

Home Business Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

Related Documents

• Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Contract : An agreement in which each party agrees to an exchange, typically involving money, goods, or services.
• Lease/Rental Agreement : A lease agreement is a written document that officially recognizes a legally binding relationship between two parties -- a landlord and a tenant.
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A DIY guide to transferring assets into a living trust

You may have established a living trust, but it's not functional until you transfer ownership of your assets to it.

Find out more about Living Trusts

by   Brette Sember, J.D.

Brette is a former attorney and has been a writer and editor for more than 25 years. She is the author of more than 4...

Read more...

Updated on: April 3, 2024 · 10min read

Key takeaways of a living trust

Understanding the benefits of a revocable living trust, preparing to transfer your assets, transferring real estate into your living trust, assigning financial accounts to the trust, ensuring personal property is included, life insurance and living trusts, business interests and your trust, overlooked assets and uncommon considerations, regular review and updating of your living trust, frequently asked questions.

Need to transfer assets to a living trust ? This guide provides detailed, practical steps to re-title your assets and secure your estate’s future: Learn exactly how to transfer assets to a living trust, avoiding any unnecessary confusion or legalese.

• A living trust is beneficial for avoiding probate, maintaining privacy in asset distribution, and providing long-term savings by minimizing legal and probate-related expenses.
• Assets must be carefully prepared for transfer into a living trust, requiring an inventory of assets, legal ownership changes, and coordination with financial institutions and insurers.
• Regularly reviewing and updating your living trust is crucial to ensure it reflects current life circumstances and asset distributions remain aligned with your intentions.

A revocable living trust is a legal mechanism that allows the transfer of assets to a trustee for management and eventual distribution to beneficiaries upon death or at a designated time. This process bypasses the often-time-consuming probate process, thereby maintaining confidentiality in asset distribution and offering asset protection.

Although the initial expense of establishing a living trust exceeds that of creating a will, it can result in substantial long-term savings through minimizing or eliminating costs associated with:

• other related expenses

Investing in the establishment of a living trust is a pivotal move in creating a comprehensive estate plan, ultimately ensuring the preservation of your assets’ value for your heirs.

Before you can enjoy the benefits of a living trust, there are necessary steps to take to prepare your assets for transfer. It’s crucial to classify your assets into four primary types:

• Real property
• Cash accounts
• Financial instruments
• Tangible personal property

To transfer ownership of these assets requires a change in legal ownership from your own name to the trust’s name, effectively funding the trust.

Assets eligible to be placed into a living trust include but not limited to:

• Real estate
• Financial accounts such as stocks and bonds
• Life insurance policies
• Business interests
• A diverse array of personal property

Before beginning the process to transfer assets into a living trust, it’s vital to compile a detailed inventory of all assets intended for the living trust to avoid any oversights during the transition.

Moving real estate into your living trust is an integral part of the asset transfer process. This can be accomplished through the use of a deed, such as a quitclaim or warranty deed, which should be executed and recorded properly. Moreover, consulting with a title insurance company to verify the accuracy of the deed transfer is vital.

Deed preparation and execution

The process of transferring real estate to a living trust begins with deed preparation. This process includes locating the original property deed, acquiring a new deed, obtaining notarization for the new deed, and ultimately submitting the new deed to the relevant office for filing. If the property is part of a homeowners association, or if there’s a mortgage on the property, you may also need to obtain permission from the respective parties.

The execution of the quit claim deed often involves signing the deed in the presence of a notary, and subsequently recording it with the relevant government office to formalize the transfer. A quitclaim deed serves as a legal mechanism for transferring the property owner’s interest to the living trust.

Coordination with mortgage lender and insurance company

Alongside deed preparation and execution, coordinating with your mortgage lender and insurance company is a critical component of transferring real estate to a living trust. This coordination is essential to ensure proper documentation and coverage. It’s advisable to proactively seek approval from the mortgage holder before proceeding with the transfer.

Failing to inform a mortgage lender about transferring real estate into a living trust could potentially activate the acceleration clause, prompting the lender to demand immediate repayment of the mortgage. It’s also advisable to reach out to your insurance agent or broker, who will guide you through the process and provide any required documentation or information. Transferring a home into a living trust generally does not impact the homeowner’s insurance policy, but it’s crucial to add the trust as an ‘additional insured’ on the policy to ensure continued protection for the property.

Assigning financial accounts to the trust constitutes another vital step in the process of transferring assets to a living trust. This includes:

• Bank accounts
• Brokerage accounts
• Health savings accounts
• Other financial instruments

Bank accounts and brokerage accounts

Financial assets such as investments, bank accounts, money market accounts, or stock certificates can indeed be transferred to a living trust. This process involves reaching out to the relevant institutions and fulfilling any necessary paperwork. For instance, transferring bank accounts to a living trust involves either closing the current account and reopening a new one in the name of the trust or, in the case of CDs, waiting for them to mature and using the funds to open a new CD in the trust’s account.

Similarly, transferring a safe deposit box to a living trust can typically be accomplished without the necessity of closing and reopening the box. If your bank requests copies of the trust documents prior to opening accounts in the name of your trust, it is advisable to furnish the required copies to ensure compliance with the bank’s policies.

Handling retirement and medical savings accounts

Retirement and medical savings accounts have specific rules and restrictions when it comes to being transferred into living trusts. Transfers of individual retirement accounts may be treated as distributions by the IRS, potentially resulting in income tax obligations on the transferred amount.

The process of transferring retirement accounts into a living trust can be intricate and may not be suitable in certain circumstances. It is prudent to seek guidance from an estate planning attorney before proceeding.

It is generally not recommended to transfer retirement accounts such as 401(k), IRA, 403(b), and certain qualified annuities directly into a living trust. This is due to potential tax implications and complex regulations associated with these accounts. Instead, you can designate a successor trustee of your trust as a beneficiary for these accounts.

The inclusion of personal property in your living trust is equally important as the transfer of real estate or financial accounts. This involves listing specific items and creating general assignments.

Specific items and general assignments

Personal property can be transferred to a living trust by specifically naming the items in the trust document and indicating that their ownership is being transferred to the trust. This includes categories of personal belongings such as:

• collectibles
• other tangible personal property

A general assignment within a living trust involves the transfer of ownership of a wide range of personal assets into the ownership form the trust. This allows for the inclusion of assets without title documents or assets that were not retitled, ultimately helping to bypass probate for those assets and ensuring they are governed by the trust.

Life insurance policies can play a unique role when it comes to living trusts. The transfer of a life insurance policy to a living trust involves transferring ownership of the policy to either another adult or the named beneficiary, or creating a trust and designating it as the beneficiary designation.

Contemplating the potential loss of creditor protection is crucial before proceeding with the transfer of a life insurance policy to a living trust. It is advisable to seek guidance from a legal professional or accountant in order to fully comprehend the potential tax implications.

Transferring business interests to a trust can be beneficial for a variety of reasons, including alleviating your family from the responsibility of your business debts and potentially minimizing the tax liability on your estate. Nevertheless, reviewing relevant business documents for guidance and transfer limitations, such as partnership agreements, operating agreements, or articles of incorporation, is crucial.

The process for transferring a business name between interests varies depending on the type of business. Here are some examples:

• Transferring a partnership interest to a living trust may require obtaining approval in accordance with the terms of the partnership agreement or operating agreement.
• Transferring business interests from an LLC owner to a living trust typically involves obtaining approval from a majority of owners.
• Transferring a sole proprietorship into a living trust is usually straightforward as business assets are typically in the owner’s name, providing protection for the family from business liabilities.

Estate planning involves considering all types of assets, including those that are often overlooked or uncommon. Certain assets, like IRAs, are not eligible to be held by a trust, but they can be designated as a beneficiary. A pour-over will functions as a mechanism for transferring any remaining assets into a living trust upon the trustor’s death, although it does require undergoing probate proceedings.

When planning your estate, it’s important to consider whether to designate a trust as the primary or secondary beneficiary for accounts with beneficiary designations, such as savings accounts. This ensures that the assets within these accounts are properly managed and distributed according to the terms of the living trust.

Examples of commonly overlooked assets and less typical considerations include funeral trusts , sub-trusts for specific family scenarios, and different types of trusts, such as children’s trusts and generation-skipping trusts.

The process doesn’t end once your living trust is established and funded. Continually reviewing and updating your living trust is necessary to keep it current and effective, responding to life events and changing circumstances.

It is advisable to review your trust at least annually or following any major life events such as:

• the birth of a child
• the death of a beneficiary

Changes in circumstances, such as shifts in your financial landscape or family dynamics, require revisions to the trust to accurately reflect your current situation and intentions for your estate.

The creation and maintenance of a living trust can be an effective strategy to ensure a smooth transition of your assets to your beneficiaries. Whether it’s real estate, financial accounts, personal property, life insurance policies, or business interests, a living trust provides a comprehensive solution for managing your estate. However, it’s vital to remember that this is an ongoing process that requires regular review and updates in response to life events and changes in circumstances.

How are assets transferred to a trust?

Assets can be transferred to a trust through methods like a deed of grantor(s) to trustee(s), title transfer, assignment of ownership, opening new accounts, naming the trust as a beneficiary, and more. Transferring assets to a trust can be done through various legal means, providing flexibility to the grantor.

What assets should not be in a trust?

You should not put assets like retirement accounts, health savings accounts, life insurance policies, and vehicles in a trust. These types of assets generally have cash value and should not go into a living trust.

What are disadvantages of putting property in trust?

Placing a property in trust can lead to extra paperwork and potential tax burdens. Additionally, not all trusts offer protection for other assets from creditors, as revocable trusts do not protect assets from creditors.

Are transfers to a trust taxable?

Transfers to a trust are not subject to income tax, including gifts to trusts and distributions of principal from trusts to beneficiaries. The gift tax and estate tax are the transfer taxes relevant to trusts.

What are the benefits of a living trust?

A living trust offers benefits such as bypassing probate, maintaining privacy, providing asset protection, and potentially offering tax benefits. Consider setting up a living trust to take advantage of these benefits.

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How to Transfer Assets to an Irrevocable Trust: Step-By-Step

Updated 08/28/2023

Published 07/30/2022

Gary Stern, JD

Consultant, retired attorney

Cake values integrity and transparency. We follow a strict editorial process to provide you with the best content possible. We also may earn commission from purchases made through affiliate links. As an Amazon Associate, we earn from qualifying purchases. Learn more in our affiliate disclosure .

The word "irrevocable" means a thing that you cannot change.  

We tend not to like making these types of arrangements. We want the flexibility to make changes in life. Especially with legal agreements, we want the ability to amend them over time.

But being irrevocable also can have advantages, for example, setting up an irrevocable trust.

Jump ahead to these sections:

What to consider before you transfer assets to an irrevocable trust, what information will you need to transfer your assets, steps for transferring assets to an irrevocable trust, frequently asked questions: transferring assets to an irrevocable trust.

Trusts come in two forms - "revocable" and "irrevocable." You can amend a "revocable trust" in any manner you want based on their terms. You cannot do so for an "irrevocable trust."

This article discusses how to transfer assets to an irrevocable trust.

Before you transfer assets to an irrevocable trust, you need to consider the pros and cons.

The benefits of setting up an irrevocable trust include:

• Asset protection: Transferring assets to an irrevocable trust can make it difficult for a creditor to reach these assets and can better protect assets from creditor claims.
• Asset management: An irrevocable trust can better maintain a trust structure to manage assets than a revocable trust.      
• Reduced estate taxes: If you keep some assets in an irrevocable trust, your estate can be subject to lower federal and state estate taxes.
• Privacy: Holding your assets in an irrevocable trust rather than individually can make it more challenging for someone to figure out your connection to the assets. For example, if you want to keep your ownership of a cryptocurrency account private, you can hold the account in an irrevocable trust.

There are some downsides to setting up an irrevocable trust, including:

• Loss of management control: Trustees manage trusts. In some cases, you will not be the sole trustee for your irrevocable trusts, so you could lose management control over the assets.
• No beneficial interest: You establish trusts for the benefit of other people. For certain irrevocable trusts, you will not be the beneficiary.
• Expense: It costs money to set up and maintain an irrevocable trust. You pay legal fees to create the trust and accounting fees to prepare the tax returns. You may also pay transfer fees to transfer assets, and you could pay added income tax.        
• Irrevocability: The nature of an irrevocable trust is that you will be unable to revoke or amend it as you wish. If you want to change something about the arrangement, you can name a trusted person referred to as a "trust protector") who has the right to amend the irrevocable trust. You can also amend some limited administrative, non-substantive issues concerning the irrevocable trust. 

You need to consider these benefits and costs in your specific situation before you transfer assets to an irrevocable trust.      

Establishing an irrevocable trust involves you and another person writing a trust agreement. You are the "grantor" (or creator) of the irrevocable trust, and the other person is your trustee.

There are several important issues to address under the trust agreement, including:

• Who are the beneficiaries of the irrevocable trust?
• Who are the successor beneficiaries?
• Should the beneficiaries receive their beneficial interests outright or in trust?
• If the latter, what are the provisions of these trusts?
• Who are the trustees?
• Who are the successor trustees if the initial trustees pass away or otherwise cannot serve?
• Are there any special conditions that should come into play here?

You must also obtain a tax ID number for the irrevocable trust and comply with applicable state law. These requirements may include filing the trust agreement with the state. 

You next need information about your assets. First, you must determine your assets' market value and tax information, allowing you to analyze the tax consequences of transferring your assets to the trust.

Second, you must check that you can legally transfer assets to the irrevocable trust: Does the transfer require another person's written consent? Would it violate any loan agreements? Would the transfer trigger a "due-on-sale" clause?     

Once you have the irrevocable trust and asset information, you can begin to transfer your assets. When writing the asset transfer document, you reference the name of the trustee as follows:

"[NAME OF TRUSTEE], not individually, but as Trustee of [NAME OF TRUST]." 

This language highlights that the trustee has management control over the asset in the trust. 

The specific procedure to transfer assets to an irrevocable trust varies based on the nature of the asset.

Real estate

Transferring real estate to an irrevocable trust involves writing a deed (typically a "quit claim deed"). You may have to pay transfer -- or "recording" -- fees, but you can check to see if you qualify for an exemption under applicable state and county law. If the real estate is subject to a mortgage, you should also carefully check the "loan covenant" and" 'due-on-sale clause" issues described above.

Stocks and bonds

You transfer stocks, bonds, and other marketable securities to an irrevocable trust by a written "assignment." The brokerage firm holding your stocks and bonds provides the specific assignment form.

Bank accounts

You must establish a new bank account in the name of the irrevocable trust, at which point you can transfer the cash from your existing individual accounts to the new irrevocable trust bank account. Banks require you to complete written paperwork to launch this new bank account.

Life insurance

Life insurance assets require a written "assignment." The insurance company issuing the life insurance provides the form. 

Irrevocable life insurance trusts are a common type of trust designed to keep life insurance out of your taxable estate after you die.

Business interests

To transfer business interests to an irrevocable trust, you also use a written "assignment." The type of assignment varies based on the particular business entity. 

Limited liability company business interests (LLCs) use an "Assignment of Membership Interest." 

Partnerships use "Assignment of Partnership Interest." 

Business interests in a corporation use an "Assignment Separate From Certificate."

Tangible personal property

You transfer certain tangible personal property to an irrevocable trust using a written "bill of sale," which can include things like collectibles, artwork, and jewelry. For other tangible personal property registered with the state, like a car, you must complete the state's applicable "change of title" forms as well as a written bill of sale.

Intangible property

Using a written assignment, you can transfer intangible property, such as contract rights and options, to an irrevocable trust. When the transfer involves contract rights, you should carefully check the "consent" issue described above.

Other assets

Other assets - like cryptocurrency, foreign currencies, trademarks, copyrights, patents, software, and airplanes - have specific asset transfer procedures. You should consult an attorney to ensure you know the correct process to transfer any asset to an irrevocable trust.

You cannot transfer retirement plan assets like IRAs or 401(k) plans to an irrevocable trust.  

Transferring assets to an irrevocable trust can raise many issues. Here are some frequently asked questions about transferring assets to an irrevocable trust.

Can you transfer assets out of an irrevocable trust?

Transferring assets out of an irrevocable trust depends on the terms of the trust agreement, but a properly drafted trust agreement grants the trustee authority to do so.     

Are transfers to an irrevocable trust taxable?

It's complicated: You must consider both gift and income tax consequences.

Transferring assets to an irrevocable trust when you are not the sole beneficiary can result in federal gift tax liability. There are three key exemptions from federal gift tax liability:

• Gifts to a spouse
• Beginning in 2022, gifts of up to $16,000 per year (that number used to be $15,000).
• Starting in 2022, gifts of up to $12,060,000 during your lifetime (that number used to be $11,700,000)

In some instances, filing a federal gift tax return may be necessary even if you are exempt.

Transferring assets to an irrevocable trust can also mean paying federal and state income tax. You can avoid this if the irrevocable trust is a "grantor" trust. 

In this case, the person who is the grantor, not the trust itself, is liable for any income tax in connection with the trust. If you, as the grantor, transfer an asset to an irrevocable "grantor" trust, you are deemed to transfer the asset to yourself for income tax purposes. As a result, there is no income tax liability when you transfer assets to an irrevocable "grantor" trust.

It is important to remember that income tax rates for trusts are higher than individual income tax rates. Income from assets in a trust can be subject to higher income taxes if they're in an irrevocable trust than if you own them outright. You can avoid this if the trust is a "grantor" trust.

Even if trusts involve high gift taxes or income taxes, an irrevocable trust may still be beneficial: It may provide significant estate tax savings and reduce federal and state estate taxes by removing assets from the taxable estate.

Can a beneficiary add assets to an irrevocable trust?

The grantor usually adds assets to an irrevocable trust. If the trust agreement authorizes it, a beneficiary also can add assets.

Find a Qualified Attorney and Accountant

Transferring assets to an irrevocable trust is complicated. It's a good idea to hire a qualified attorney and accountant to assist you with your irrevocable trust.

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Understanding the Basics of Assignment and Assumption Agreements

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Note: Links to our free templates are at the bottom of this long guide. Also note: This is not legal advice

Introduction

Understanding the importance of assignment and assumption agreements is essential for any business transaction. These agreements are legal documents which outline the transfer of ownership, rights, and obligations from one party to another in order to protect both parties from liabilities and disputes. Moreover, they help streamline the transition of ownership by providing a clear agreement between all involved.

At Genie AI, we understand that navigating these agreements can be difficult without legal expertise - but it doesn’t have to be! Our team provides free assignment and assumption agreement templates so that anyone can draft high-quality legal documents without paying hefty lawyer fees.

These agreements are crucial in corporate mergers, asset sales, and other business transactions as they protect both assignee and assignor from potential future disputes or disagreements. Furthermore, it helps everyone involved in the process come to an agreement about the transfer of assets or liabilities.

It’s also important for businesses to ensure that all records, documents, and information is properly transferred when assigning contracts - something which assignment and assumption agreements make simpler. Not only does this avoid any potential issues in the future but ultimately makes for a smoother transition when dealing with such matters.

In short, assignment and assumption agreements provide an invaluable service when it comes to safeguarding both parties involved in a business transaction while also simplifying their processes along the way. To learn more about how our team at Genie AI can help you on your way towards drafting these essential documents - read on below for our step-by-step guidance or visit us today to access our template library!

Definitions

Assignor: The party transferring the rights and liabilities. Assignee: The party receiving the rights and liabilities. Asset Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their ownership of a particular asset to another party. Liability Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their liability to another party. Contract Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their contractual obligations to another party. Lease Assignment and Assumption Agreement: An agreement used when one party transfers all or part of their responsibilities under a lease to another party. Representations and Warranties: Promises made by the Assignor and Assignee in order to ensure they understand the risks associated with the transfer and are comfortable taking on the rights and liabilities. Indemnification: A clause outlining the terms under which the Assignor and Assignee are liable for any losses or damages due to the transfer. Choice of Law: A clause specifying which jurisdiction’s laws will govern the agreement. Severability: A clause outlining how the agreement will be enforced if any part of it is deemed unenforceable. Governing Law: A clause specifying which court will have jurisdiction over any disputes that arise out of the agreement. Notices: A clause outlining how notices between the parties will be delivered.

Definition of Assignment and Assumption Agreement

Overview of the different types of assignment and assumption agreements, asset assignment and assumption agreement, liability assignment and assumption agreement, contract assignment and assumption agreement, lease assignment and assumption agreement, the purpose of an assignment and assumption agreement, the process of negotiating an assignment and assumption agreement, identifying the parties involved, discussing the terms, drafting the agreement, final review and signing, key terms and clauses commonly found in assignment and assumption agreements, assignor & assignee, liabilities and obligations, representations and warranties, indemnification, choice of law, severability, governing law, potential issues that may arise when negotiating an assignment and assumption agreement, scope of liabilities, representations & warranties, dispute resolution, contractual limitations, practical considerations when drafting an assignment and assumption agreement, identifying contingent liabilities, understanding applicable laws, drafting clear & concise language, complying with any regulatory requirements, potential benefits of using an assignment and assumption agreement, risk reduction, asset protection, cost savings, potential pitfalls of using an assignment and assumption agreement, unforeseen risks, negotiating difficulties, regulatory non-compliance, conclusion and next steps, finalizing the agreement, implementing the agreement, documenting the outcome, get started.

• Understand the legal definition of an Assignment and Assumption Agreement: an agreement between two parties, which transfers one party’s rights, duties and obligations under a contract to another party
• Learn who can enter into an Assignment and Assumption Agreement: the parties to the original contract, or their successors
• Know what rights and obligations are transferred under an Assignment and Assumption Agreement: all rights, duties, and obligations that have been agreed upon in the original contract
• Be aware of the consequences of assigning and assuming obligations: the assignee is responsible for performing all duties and obligations of the contract, just as if they had originally entered into the contract.
• When you can check off this step: You will know you have a good understanding of the definition of an Assignment and Assumption Agreement when you can explain it in your own words and are aware of the rights and obligations transferred and the consequences of assigning and assuming obligations.
• Understand the three common types of assignment and assumption agreements: asset assignment and assumption agreement, contractual assignment and assumption agreement, and debt assignment and assumption agreement
• Learn the key features of each type, including the type of asset or obligation being assigned and assumed
• Determine the purpose of the agreement and the advantages of each type of agreement
• Check off this step when you feel confident that you understand the purpose and differences between the three types of assignment and assumption agreements.
• Research and understand the definitions of an asset assignment and assumption agreement
• Learn the different types of assets that can be assigned and assumed in an agreement
• Understand the purpose of an asset assignment and assumption agreement
• Research and review the legal elements of an asset assignment and assumption agreement, such as the parties involved, the assignor and assignee, the description of the assets to be assigned and assumed, the consideration for the assignment and assumption, the representations and warranties of both parties, the indemnification and other relevant provisions
• Draft an asset assignment and assumption agreement with the help of a qualified attorney
• When you are satisfied with the asset assignment and assumption agreement that you have drafted, execute the agreement according to the applicable law and have it notarized
• Check this off your list and move on to the next step, which is understanding liability assignment and assumption agreements.
• Research applicable state and federal laws to ensure the agreement is in compliance
• Draft a liability assignment and assumption agreement that assigns all liabilities of the transferor to the transferee
• Identify all liabilities to be assigned, including any and all warranty liabilities, product liabilities, and medical liabilities
• Include all necessary clauses that provide for the transfer of the liabilities, and state that the transferor will not be liable for any liabilities after the date of the agreement
• Get the agreement approved by the assigning and assuming parties
• Sign and date the agreement in the presence of a witness
• Once all parties have signed the agreement, you can check this off your list and move on to the next step of drafting the Contract Assignment and Assumption Agreement.
• Understand the difference between an assignment and an assumption agreement. An assignment agreement transfers the rights and obligations of the original contract from one party to another, while an assumption agreement transfers only the obligations of the original contract to the new party.
• Familiarize yourself with the language of the assignment and assumption agreement. The agreement should clearly state the terms of the assignment, the obligations assumed by the new party, and the liabilities being transferred.
• Draft the assignment and assumption agreement. Make sure to include all relevant details, such as the parties involved, the original contract being transferred, the new obligations assumed by the new party, and any other important information.
• Review the agreement with a legal professional. It is important to have a lawyer or other legal professional review the agreement to make sure it meets all legal requirements.
• Sign the agreement. Once both parties have signed the agreement, it is officially binding and the obligations of the original contract are now transferred to the new party.

You will know when you can check this off your list and move on to the next step when you have completed all steps in this section, including drafting, reviewing, and signing the agreement.

• Understand the basics of a lease assignment and assumption agreement
• Have an understanding of the parties involved in the agreement
• Know what is included in the agreement such as the particular lease, the transferor, the transferee, a consideration amount, date of assignment, and other related documents
• Have an understanding of the legal implications of the agreement as far as warranties, liabilities, and other related obligations
• Understand the process of executing the agreement and any other related steps required
• Be aware of any local or state laws that may affect the agreement

Once you have a thorough understanding of the lease assignment and assumption agreement, you can check off this step and move on to the next step in the guide: The Purpose of an Assignment and Assumption Agreement.

• Understand the purpose of an assignment and assumption agreement, which is to transfer rights and obligations from one party to another
• Learn the different types of assignment and assumption agreements, such as lease assignment and assumption agreements, purchase and sale agreements, and contracts
• Identify the parties involved in the agreement, what rights and obligations are being transferred, and how the agreement will be executed
• Once you understand the purpose of an assignment and assumption agreement, you can move on to the next step in the guide
• Research and determine the terms of the agreement that are appropriate for your situation
• Identify any potential legal issues that could arise from the assignment and assumption agreement
• Draft the agreement that outlines the terms, conditions, consideration, and liabilities
• Both parties must review and approve the agreement in its entirety
• Make sure the agreement is signed by both parties and that each party has a copy of the agreement
• When both parties have agreed upon and signed the agreement, the assignment and assumption agreement is officially enforceable
• You can check this step off your list and move onto the next step once the agreement is signed and all parties have a copy.
• Identify all parties involved in the agreement, including the assignor, the assignee, and any other third parties
• Be sure to document all of the parties in the agreement and provide contact information for each
• Get contact information for all parties involved, including names, addresses, and phone numbers
• Verify that all parties involved are of legal age and able to enter into a binding agreement
• Make sure that all parties understand their roles and obligations in the agreement

When you can check this off your list: When all parties have been identified, contact information has been provided, and all parties understand and accept their roles and obligations in the agreement.

• Learn the key terms used in assignment and assumption agreements, such as “assignor” and “assignee.”
• Understand the scope of the agreement and the rights and obligations of each party.
• Consider any potential restrictions that might be in place.
• Identify any laws or regulations that affect the agreement.

You can check this step off your list and move on to the next step when you have a basic understanding of the terms used in the agreement, and the scope of the agreement and the rights and obligations of each party.

• Determine the parties involved in the assignment and assumption agreement and obtain contact information for each.
• Draft the agreement and include all the agreed upon terms and conditions.
• Review the agreement with all parties to ensure the terms and conditions are accurately reflected.
• Revise the agreement as needed to reflect any changes or amendments.
• Once all parties have agreed to the agreement and all revisions have been made, the agreement is ready to be signed.
• Carefully review the agreement to ensure that all the details and clauses are accurately reflected
• Make sure all parties to the agreement have signed the document
• Have all parties to the agreement keep a signed copy of the document for their records
• Once all parties have signed the document, you can check this off your list and move on to the next step.
• Familiarize yourself with the language and terminology used in assignment and assumption agreements.
• Understand the components of the agreement, such as the assignor, assignee, consideration, and liabilities.
• Become familiar with the common clauses found in assignment and assumption agreements, such as the warranty clause, assignment clause, and liability clause.
• Review the agreement for accuracy and ensure that all of the terms and conditions are clear.
• Once you have a full understanding of the key terms and clauses in the agreement, you can move on to the next step in the process.
• Determine who is the assignor and who is the assignee - the assignor is the one who is transferring their rights and obligations to the assignee
• Know the difference between the assignor and assignee - the assignor is the party transferring the rights and obligations, and the assignee is the party receiving them
• Understand the implications of the assignment and assumption agreement - the assignor is no longer responsible for the rights and obligations they are transferring to the assignee
• Make sure that the assignor and assignee are both aware of their respective roles and responsibilities - this will ensure that the agreement is legally binding

Once you have determined who the assignor and assignee are, know the differences between them, understand the implications of the agreement, and make sure both parties are aware of their roles and responsibilities, you can move on to the next step.

• Identify and list out all of the liabilities and obligations that are being assigned in the agreement
• Ensure that all liabilities and obligations of the assignor that are to be assumed by the assignee are included in the agreement
• Specify the date on which the liabilities and obligations are to be assumed by the assignee in the agreement
• Make sure that the assignee is aware of and accepts the liabilities and obligations that are being assigned
• Confirm that the assignor is not liable for any of the liabilities and obligations that are being assigned to the assignee
• Make sure to include a clause in the agreement that states that the assignor will not be liable for any of the liabilities and obligations that are being assigned to the assignee

When you can check this off your list and move on to the next step:

• When the assignor and assignee have agreed on all of the liabilities and obligations that are being assigned in the agreement
• When the assignor has agreed to not be liable for any of the liabilities and obligations that are being assigned to the assignee
• When the agreement has been reviewed and approved by both the assignor and assignee
• Ensure that all statements made by the assignor and the assignee are accurate and current
• Identify all representations and warranties made by the assignor to the assignee
• Make sure that any representations and warranties made by the assignor are clear and enforceable
• Verify that any representations and warranties made by the assignee are accurate and up-to-date
• Determine the remedies for breach of any representations and warranties

You can check this off your list and move on to the next step when you have identified all representations and warranties, verified that they are accurate and up-to-date, and determined the remedies for breach.

• Assignor should agree to indemnify Assignee from any and all claims, losses and damages that arise from breach of representations and warranties
• Assignor should agree to pay Assignee’s legal fees and other costs associated with defending against any claim
• Assignee should agree to indemnify Assignor from any and all claims, losses, and damages that arise from the Assignee’s actions after the transfer of the subject matter
• Once these indemnification terms are set, you can check this step off your list and move on to the next step.
• Determine the state law that will govern the agreement. Generally, the state law that will be applicable is the state in which the agreement is executed.
• The state law that you choose should be clear and explicit. Consider consulting a lawyer or legal advisor if you are unsure of the applicable state law.
• Make sure to include the state law that has been agreed upon in the agreement.
• Check off this step when the applicable state law has been determined and included in the agreement.
• Read your agreement carefully to ensure that the severability clause is properly drafted
• The severability clause should state that if any portion of the agreement is found to be invalid or unenforceable, the remaining provisions will remain in full force and effect
• Familiarize yourself with the definitions of severability, enforceability, and invalidity
• Make sure that the agreement includes a severability clause that is tailored to the particular agreement
• Once you are confident that the severability clause is properly drafted, you can check this step off your list and move on to the next step.
• Research governing laws in the jurisdiction where the agreement will be signed and enforced
• Determine the laws that will govern the agreement and include them in the governing law clause
• This clause should include the state, country, or other jurisdiction
• Once you have determined the governing laws and included them in the clause, you can check this off your list and move on to the next step.
• Ensure that the agreement includes a provision specifying a proper notice address for each party
• Check that the notice provision includes the name and address of the recipient, the method of service (e.g., mail, e-mail, or fax), and the time period for responding
• Review the agreement to make sure that it includes a provision specifying the manner in which the parties will provide notice to each other
• Confirm that notice is defined correctly, as this is important for determining the time period for responding
• Once all of these points have been verified, you can check this off your list and move on to the next step.
• Review the agreement to make sure that the assignment language is drafted correctly and is broad enough to encompass all of the rights and obligations being assigned
• Ensure that the parties are not trying to assign any rights or obligations that are not legally assignable
• Make sure that the agreement is clear regarding the liabilities of the parties, as they will be assumed by the assignee
• Confirm that the assumptions being made by the assignee are clearly laid out in the agreement
• Ensure that the agreement is not assigning any rights or obligations that may be subject to the consent of a third party
• When all potential issues have been addressed, the agreement can be signed by both parties.
• Understand that an Assignment and Assumption Agreement (A&A) will transfer some of the liabilities from one party to another in a business transaction
• Identify which liabilities are to be transferred in the A&A
• Clarify which liabilities will remain with the original party
• Establish a timeline for the transfer of liabilities
• Decide which party is responsible for liabilities that occur after the transfer
• Make sure that the liabilities are accurately defined and described in the A&A

You will know that you can check this step off your list and move on to the next step when all liabilities have been properly identified, defined and described in the A&A, and all parties have agreed to the timeline for the transfer of liabilities.

• Understand the basics of Representations & Warranties and what they mean in the context of assignment and assumption agreements
• Learn what should be included in Representations & Warranties and the consequences of not making accurate representations
• Research different types of Representations & Warranties, such as those related to title, capacity, authority, and performance
• Check that all Representations & Warranties included in the agreement are accurate and up-to-date
• Once all Representations & Warranties have been reviewed and confirmed to be accurate, you can check this step off your list and move on to the next step of the guide.
• Understand that disputes under an Assignment and Assumption Agreement are generally handled by the parties involved
• Understand the purpose of an arbitration clause in the agreement, which is to resolve disputes quickly, fairly, and affordably
• Determine if the agreement should include a mediation clause, which is less formal than arbitration and may be more suitable for some disputes
• Consider whether the agreement should include a choice of law clause, which will determine the governing law of the agreement
• Know that the agreement should specify the venue for any potential dispute resolution proceedings
• Understand that the parties may need to provide notice to the other party before initiating a dispute resolution procedure
• When you have a full understanding of how disputes will be handled under the Assignment and Assumption Agreement, you can check this step off your list and move on to the next step.
• Understand the importance of the contractual limitations outlined in the agreement
• Make sure all parties involved in the agreement have agreed to the contractual limitations
• Know that contractual limitations are meant to protect the parties involved in the agreement
• Be aware that contractual limitations may include time limits, scope of duties, and other stipulations
• When all parties involved have agreed to the contractual limitations, you have completed this step and can move on to the next step.
• Familiarize yourself with the applicable laws in the jurisdiction in which the assignment and assumption agreement will be executed
• Make sure to include language in the agreement that will address any issues that may arise due to a conflict of laws
• Ensure that the agreement properly identifies and describes the rights, obligations, and interests that are being assigned and assumed
• Identify any contingencies that could affect the transfer of rights and obligations, and include language that addresses such contingencies
• Consider adding any additional provisions that may be necessary to ensure the successful completion of the transaction

You can check this off your list and move on to the next step when you have addressed any issues that may arise due to a conflict of laws, properly identified and described the rights, obligations and interests that are being assigned and assumed, identified any contingencies that could affect the transfer of rights and obligations, and considered adding any additional provisions that may be necessary to ensure the successful completion of the transaction.

• Identify all contingent liabilities that must be assumed by the assignee, including any pending or potential claims and obligations
• Make sure the assignee is aware of, and willing to assume, the contingent liabilities
• Include language in the assignment and assumption agreement that outlines the assignee’s assumption of any contingent liabilities
• Check that the provisions in the agreement precisely identify the liabilities assumed by the assignee
• When all contingent liabilities have been identified and included in the agreement, you can move on to the next step of understanding applicable laws.
• Research applicable laws related to assignment and assumption agreements in your jurisdiction
• Understand the legal language and key elements of an assignment and assumption agreement
• Understand the process for filing and registering an assignment and assumption agreement
• Know what documents and information may be required to complete the registration process
• Understand the timeline for completion of the registration process
• Once you have a good understanding of the applicable laws and the process for registration, you can move on to the next step of identifying any contingent liabilities.
• Research the applicable law, and use language that is consistent with the requirements
• Draft a clear and concise agreement that covers all relevant topics
• Ensure that the language used is precise and unambiguous
• Define any legal terms used in the agreement
• Make sure that the agreement is in writing and all parties have signed it
• Review the agreement and make sure it is legally compliant
• When all of the above steps are completed, you can move on to the next step in the guide.
• Research applicable laws and regulations that may apply to the assignment and assumption agreement
• Obtain any necessary licenses or permits, such as a real estate license
• Ensure that all parties understand the regulations that apply to the agreement
• Determine if any state or federal laws need to be adhered to
• When all applicable laws and regulations have been taken into account and complied with, you can move on to the next step.
• Understand the potential advantages of using an Assignment and Assumption Agreement, including:
• Transferring existing contractual obligations and liabilities from one party to another
• Ensuring continuity in contractual agreements between parties
• Avoiding the need for a new contract
• When you have a solid understanding of the potential benefits of using an Assignment and Assumption Agreement, you can check off this step and move on to the next one, which is Risk Reduction.
• Identify the potential risks that are associated with an assignment and assumption agreement
• Analyze how the assignment and assumption agreement may reduce those risks
• Understand the legalities that would protect both parties in the agreement
• Be aware of the potential regulatory requirements that may apply
• When you have thoroughly assessed the risks and understand how an assignment and assumption agreement can protect both parties, you are ready to move on to the next step.
• Understand the definition of an assignment and an assumption agreement
• Learn the differences between the two agreements
• Familiarize yourself with the processes and procedures of an assignment and assumption agreement
• Understand the legal implications of an assignment and an assumption agreement
• Familiarize yourself with the potential benefits of an assignment and assumption agreement
• Understand how an assignment and assumption agreement can be used to protect assets

You’ll know you can check this off your list and move on to the next step when you have a good grasp of the processes and procedures associated with an assignment and assumption agreement, the legal implications of such an agreement, and the potential benefits of using one.

• Understand the different costs associated with the transfer of assets, such as attorney’s fees, recording fees, and transfer taxes
• Consider the potential cost savings of using an assignment and assumption agreement as opposed to other methods of transferring assets
• Determine the effect of the transfer on the financial statements of both parties
• Review the agreement to ensure all costs are accounted for

When you have a thorough understanding of the cost savings to be made and have reviewed the agreement to ensure all costs are accounted for, you can move on to the next step.

• Be aware of the potential conflicts of interest between the assignor and assignee when an Assignment and Assumption Agreement is used
• Consider applicable laws, regulations and contractual restrictions when determining if an Assignment and Assumption Agreement is the best option
• Understand that if an Assignment and Assumption Agreement is used, both the assignor and assignee will remain liable for any existing obligations
• Be aware that the assignee may not have the same rights as the assignor under the agreement and may not have direct access to the original contract
• Understand that the assignee may be liable for any damages or losses caused by the assignor’s breach of the agreement

You’ll know when you can check this off your list and move on to the next step when you have a good understanding of the potential pitfalls and responsibilities associated with using an Assignment and Assumption Agreement.

• Understand that when assuming liabilities, there are certain risks that may be unforeseen and difficult to calculate
• Be aware that the assignor of the agreement can still be held liable if any unanticipated risks arise
• Carefully review the agreement to ensure that the assignor and the assignee are both protected from unforeseen risks
• Discuss any potential risks with legal counsel to ensure that all parties understand the potential risks
• Have all parties sign the agreement to ensure that everyone is aware of the risks and agrees to them
• When all parties have signed, the agreement can be considered complete and all parties can move forward with the transfer of liabilities
• Understand the differences between the two parties and their respective interests
• Identify the areas where both parties can agree on specific terms and conditions
• Determine which party will be liable for any breaches of the agreement
• Negotiate a fair deal that both parties can agree to
• Consider any legal, financial, and tax implications for both parties
• Once negotiations are complete, have the parties sign the agreement
• Make sure that both parties understand the terms and conditions of the agreement
• Verify that both parties are in agreement and that all negotiations are complete
• Check that all the required legal documents are present and in order
• Check that all parties involved are aware of their respective responsibilities

You’ll know when you can check this off your list and move on to the next step when all parties have agreed to the terms and conditions of the agreement, all required legal documents have been provided and in order, and all parties have signed the agreement.

• Research the laws and regulations that apply to the transaction, including state and local statutes, to assess potential risks
• Check for any filing requirements or permits that need to be obtained
• Identify any restrictions that could occur due to the parties involved
• Document any potential regulatory non-compliance issues
• When all potential risks have been identified and documented, you can move on to the next step.
• Review the terms and conditions of the agreement, as well as any applicable regulations, to ensure that all parties have a clear understanding of the agreement as a whole.
• Seek legal counsel if there are any questions or concerns about the agreement.
• Finalize the agreement by signing and exchanging documents.
• After the agreement has been finalized, it will be legally binding and enforceable.
• Make sure all parties are aware of their responsibilities and obligations under the agreement.
• Monitor the agreement to ensure that all parties are complying with the terms and conditions of the agreement.
• Check off this step when the agreement has been finalized and all parties have signed and exchanged documents.
• Review the agreement carefully and make sure all parties have signed off
• Make sure all parties have received a copy of the agreement
• Ensure that all parties have received the agreed-upon consideration
• File the original agreement with all relevant documents with the appropriate government agency or court
• You will know that you have finished this step when all parties have signed the agreement, all parties have received a copy, and the original agreement has been filed with the appropriate government agency or court.
• Execute the agreement, making sure both parties have signed it and that all parties involved have read, understood, and accepted the terms and conditions of the agreement.
• Make sure that the agreement has been filed with the appropriate state or federal agency, if required.
• Start the process of transferring assets and obligations from the assignor to the assignee, as outlined in the agreement.
• Make sure that all parties have the necessary information to complete the assignment and assumption. This may include but is not limited to: legal documents, financial documents, contracts, and other pertinent information.
• Ensure that all parties have received the necessary payment for the assignment and assumption.
• Check that all parties have complied with the terms and conditions of the agreement.
• You can check this off your list once you have completed all the steps necessary for the successful implementation of the agreement.
• Ensure you have all relevant documents, such as the assignment and assumption agreement, and any other documents mentioned in the agreement
• Gather all necessary signatures from the parties involved
• Make copies of the signed documents for all parties
• File the original documents with the appropriate governmental agency or court
• Update any necessary records, including those within your company
• Verify that all documents have been properly filed
• You can check off this step and move on to the next step when all documents have been properly signed and filed.

Q: What is the difference between an Assignment and Assumption Agreement and a novation agreement?

Asked by Zane on 27th March 2022. A: An Assignment and Assumption Agreement is used to transfer contractual rights and obligations from one party to another, while a novation agreement is used to substitute one contracting party with another. In a novation agreement, all three parties must agree to the substitution, while in an Assignment and Assumption Agreement, only two parties are involved.

Example dispute

Lawsuit referencing assignment and assumption agreement.

• A plaintiff may raise a lawsuit referencing an assignment and assumption agreement when one party assumes the rights and obligations of another party in a contract.
• The lawsuit may be raised if the party that assumed the rights and obligations did not fulfill them or did not fulfill them in the manner agreed upon in the contract.
• The plaintiff must provide proof that the party failed to fulfill the rights and obligations of the contract in order to win the lawsuit.
• Settlement may be reached through a negotiated agreement between the parties.
• Damages may be awarded if the plaintiff can prove the losses incurred due to the breach of contract.

Templates available (free to use)

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Assignment provisions in contracts

Author’s note, Nov. 22, 2014: For a much-improved update of this page, see the Common Draft general provisions article .

(For more real-world stories like the ones below, see my PDF e-book, Signing a Business Contract? A Quick Checklist for Greater Peace of Mind , a compendium of tips and true stories to help you steer clear of various possible minefields. Learn more …. )

Table of Contents

Legal background: Contracts generally are freely assignable

When a party to a contract “ assigns ” the contract to someone else, it means that party, known as the assignor , has transferred its rights under the contract to someone else, known as the assignee , and also has delegated its obligations to the assignee.

Under U.S. law, most contract rights are freely assignable , and most contract duties are freely delegable, absent some special character of the duty, unless the agreement says otherwise. In some situations, however, the parties will not want their opposite numbers to be able to assign the agreement freely; contracts often include language to this effect.

Intellectual-property licenses are an exception to the general rule of assignability. Under U.S. law, an IP licensee may not assign its license rights, nor delegate its license obligations, without the licensor’s consent, even when the license agreement is silent. See, for example, In re XMH Corp. , 647 F.3d 690 (7th Cir. 2011) (Posner, J; trademark licenses); Cincom Sys., Inc. v. Novelis Corp. , 581 F.3d 431 (6th Cir. 2009) (copyright licenses); Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp. , 284 F.3d 1323 (Fed. Cir. 2002) (patent licenses). For additional information, see this article by John Paul, Brian Kacedon, and Douglas W. Meier of the Finnegan Henderson firm.

Assignment consent requirements

Model language

[Party name] may not assign this Agreement to any other person without the express prior written consent of the other party or its successor in interest, as applicable, except as expressly provided otherwise in this Agreement. A putative assignment made without such required consent will have no effect.

Optional: Nor may [Party name] assign any right or interest arising out of this Agreement, in whole or in part, without such consent.

Alternative: For the avoidance of doubt, consent is not required for an assignment (absolute, collateral, or other) or pledge of, nor for any grant of a security interest in, a right to payment under this Agreement.

Optional: An assignment of this Agreement by operation of law, as a result of a merger, consolidation, amalgamation, or other transaction or series of transactions, requires consent to the same extent as would an assignment to the same assignee outside of such a transaction or series of transactions.

• An assignment-consent requirement like this can give the non-assigning party a chokehold on a future merger or corporate reorganization by the assigning party — see the case illustrations below.

• A party being asked to agree to an assignment-consent requirement should consider trying to negotiate one of the carve-out provisions below, for example, when the assignment is connection with a sale of substantially all the assets of the assignor’s business {Link} .

Case illustrations

The dubai port deal (ny times story and story ).

In 2006, a Dubai company that operated several U.S. ports agreed to sell those operations. (The agreement came about because of publicity and political pressure about the alleged national-security implications of having Middle-Eastern companies in charge of U.S. port operations.)

A complication arose in the case of the Port of Newark: The Dubai company’s lease agreement gave the Port Authority of New York and New Jersey the right to consent to any assignment of the agreement — and that agency initially demanded $84 million for its consent.

After harsh criticism from political leaders, the Port Authority backed down a bit: it gave consent in return for “only” a $10 million consent fee, plus $40 million investment commitment by the buyer.

Cincom Sys., Inc. v. Novelis Corp., No. 07-4142 (6th Cir. Sept. 25, 2009) (affirming summary judgment)

A customer of a software vendor did an internal reorganization. As a result, the vendor’s software ended up being used by a sister company of the original customer. The vendor demanded that the sister company buy a new license. The sister company refused.

The vendor sued, successfully, for copyright infringement, and received the price of a new license, more than $450,000 as its damages. The case is discussed in more detail in this blog posting.

The vendor’s behavior strikes me as extremely shortsighted, for a couple of reasons: First, I wouldn’t bet much on the likelihood the customer would ever buy anything again from that vendor. Second, I would bet that the word got around about what the vendor did, and that this didn’t do the vendor’s reputation any good.

Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, No. 5589-VCP (Del. Ch. Apr. 8, 2011) (denying motion to dismiss).

The Delaware Chancery Court refused to rule out the possibility that a reverse triangular merger could act as an assignment of a contract, which under the contract terms would have required consent. See also the discussion of this opinion by Katherine Jones of the Sheppard Mullin law firm.

Assignment with transfer of business assets

Consent is not required for an assignment of this Agreement in connection with a sale or other disposition of substantially all the assets of the assigning party’s business.

Optional: Alternatively, the sale or other disposition may be of substantially all the assets of the assigning party’s business to which this Agreement specifically relates.

Optional: The assignee must not be a competitor of the non-assigning party.

• A prospective assigning party might argue that it needed to keep control of its own strategic destiny, for example by preserving its freedom to sell off a product line or division (or even the whole company) in an asset sale.

• A non-assigning party might argue that it could not permit the assignment of the agreement to one of its competitors, and that the only way to ensure this was to retain a veto over any assignment.

• Another approach might be to give the non-assigning party, instead of a veto over asset-disposition assignments, the right to terminate the contract for convenience . (Of course, the implications of termination would have to be carefully thought through.)

Assignment to affiliate

[Either party] may assign this Agreement without consent to its affiliate.

Optional: The assigning party must unconditionally guarantee the assignee’s performance.

Optional: The affiliate must not be a competitor of the non-assigning party.

Optional: The affiliate must be a majority-ownership affiliate of the assigning party.

• A prospective assigning party might argue for the right to assign to an affiliate to preserve its freedom to move assets around within its “corporate family” without having to seek approval.

• The other party might reasonably object that there is no way to know in advance whether an affiliate-assignee would be in a position to fulfill the assigning party’s obligations under the contract, nor whether it would have reachable assets in case of a breach.

Editorial comment: Before approving a blanket affiliate-assignment authorization, a party should consider whether it knew enough about the other party’s existing- or future affiliates to be comfortable with where the agreement might end up.

Consent may not be unreasonably withheld or delayed

Consent to an assignment of this Agreement requiring it may not be unreasonably withheld or delayed.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are to be treated as direct damages.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are not subject to any exclusion of remedies or other limitation of liability in this Agreement.

• Even if this provision were absent, applicable law might impose a reasonableness requirement; see the discussion of the Shoney case in the commentary to the Consent at discretion provision.

• A reasonableness requirement might not be of much practical value, whether contractual or implied by law. Such a requirement could not guarantee that the non-assigning party would give its consent when the assigning party wants it. And by the time a court could resolve the matter, the assigning party’s deal could have been blown.

• Still, an unreasonable-withholding provision should make the non-assigning party think twice about dragging its feet too much, becuase of the prospect of being held liable for damages for a busted transaction. Cf. Pennzoil vs. Texaco and its $10.5 billion damage award for tortious interference with an M&A deal.

• Including an unreasonable-delay provision might conflict with the Materiality of assignment breach provision, for reasons discussed there in the summary of the Hess Energy case.

Consent at discretion

A party having the right to grant or withhold consent to an assignment of this Agreement may do so in its sole and unfettered discretion.

• If a party might want the absolute right to withhold consent to an assignment in its sole discretion, it would be a good idea to try to include that in the contract language. Otherwise, there’s a risk that court might impose a commercial-reasonableness test under applicable law (see the next bullet). On the other hand, asking for such language but not getting it could be fatal to the party’s case that it was implicitly entitled to withhold consent in its discretion.

• If a commercial- or residential lease agreement requires the landlord’s consent before the tentant can assign the lease, state law might impose a reasonableness requirement. I haven’t researched this, but ran across an unpublished California opinion and an old law review article, each collecting cases. See Nevada Atlantic Corp. v. Wrec Lido Venture, LLC, No. G039825 (Cal. App. Dec. 8, 2008) (unpublished; reversing judgment that sole-discretion withholding of consent was unreasonable); Paul J. Weddle, Pacific First Bank v. New Morgan Park Corporation: Reasonable Withholding of Consent to Commercial Lease Assignments , 31 Willamette L. Rev. 713 (1995) (first page available for free at HeinOnline ).

Shoney’s LLC v. MAC East, LLC, No. 1071465 (Ala. Jul. 31, 2009)

In 2009, the Alabama Supreme Court rejected a claim that Shoney’s restaurant chain breached a contract when it demanded a $70,000 to $90,000 payment as the price of its consent to a proposed sublease. The supreme court noted that the contract specifically gave Shoney’s the right, in its sole discretion , to consent to any proposed assignment or sublease.

Significantly, prior case law from Alabama was to the effect that a refusal to consent would indeed be judged by a commercial-reasonableness standard. But, the supreme court said, “[w]here the parties to a contract use language that is inconsistent with a commercial-reasonableness standard, the terms of such contract will not be altered by an implied covenant of good faith. Therefore, an unqualified express standard such as ‘sole discretion’ is also to be construed as written.” Shoney’s LLC v. MAC East, LLC , No. 1071465 (Ala. Jul. 31, 2009) (on certification by Eleventh Circuit), cited by MAC East, LLC v. Shoney’s [LLC] , No. 07-11534 (11th Cir. Aug. 11, 2009), reversing No. 2:05-cv-1038-MEF (WO) (M.D. Ala. Jan. 8, 2007) (granting partial summary judgment that Shoney’s had breached the contract).

Termination by non-assigning party

A non-assigning party may terminate this Agreement, in its business discretion , by giving notice to that effect no later than 60 days after receiving notice, from either the assigning party or the assignee, that an assignment of the Agreement has become effective.

Consider an agreement in which a vendor is to provide ongoing services to a customer. A powerful customer might demand the right to consent to the vendor’s assignment of the agreement, even in strategic transactions. The vendor, on the other hand, might refuse to give any customer that kind of control of its strategic options.

A workable compromise might be to allow the customer to terminate the agreement during a stated window of time after the assignment if it is not happy with the new vendor.

Assignment – other provisions

Optional: Delegation: For the avoidance of doubt, an assignment of this Agreement operates as a transfer of the assigning party’s rights and a delegation of its duties under this Agreement.

Optional: Promise to perform: For the avoidance of doubt, an assignee’s acceptance of an assignment of this Agreement constitutes the assignee’s promise to perform the assigning party’s duties under the Agreement. That promise is enforceable by either the assigning party or by the non-assigning party.

Optional: Written assumption by assignee: IF: The non-assigning party so requests of an assignee of this Agreement; THEN: The assignee will seasonably provide the non-assigning party with a written assumption of the assignor’s obligations, duly executed by or on behalf of the assignee; ELSE: The assignment will be of no effect.

Optional: No release: For the avoidance of doubt, an assignment of this Agreement does not release the assigning party from its responsibility for performance of its duties under the Agreement unless the non-assigning party so agrees in writing.

Optional: Confidentiality: A non-assigning party will preserve in confidence any non-public information about an actual- or proposed assignment of this Agreement that may be disclosed to that party by a party participating in, or seeking consent for, the assignment.

The Delegation provision might not be necessary in a contract for the sale of goods governed by the Uniform Commercial Code, because a similar provision is found in UCC 2-210

The Confidentiality provision would be useful if a party to the agreement anticipated that it might be engaging in any kind of merger or other strategic transaction.

Materiality of assignment breach

IF: A party breaches any requirement of this Agreement that the party obtain another party’s consent to assign this Agreement; THEN: Such breach is to be treated as a material breach of this Agreement.

A chief significance of this kind of provision is that failure to obtain consent to assignment, if it were a material breach, would give the non-assigning party the right to terminate the Agreement.

If an assignment-consent provision requires that consent not be unreasonably withheld , then failure to obtain consent to a reasonable assignment would not be a material breach, according to the court in Hess Energy Inc. v. Lightning Oil Co. , No. 01-1582 (4th Cir. Jan. 18, 2002) (reversing summary judgment). In that case, the agreement was a natural-gas supply contract. The customer was acquired by a larger company, after which the larger company took over some of the contract administration responsibilities such as payment of the vendor’s invoices. The vendor, seeking to sell its gas to someone else at a higher price, sent a notice of termination, on grounds that the customer had “assigned” the agreement to its new parent company, in violation of the contract’s assignment-consent provision. The appeals court held that, even if the customer had indeed assigned the contract (a point on which it expressed considerable doubt) without consent, the resulting breach of the agreement was not material, and therefore the vendor did not have the right to terminate the contract.

See also (list is generated automatically) :

• Notebook update: Reverse triangular merger might be an assignment of a contract, requiring consent Just updated the Notebook with a citation to a case in which the Delaware Chancery Court refused to rule out the possibility that a reverse...
• Assignment-consent requirements can cause serious problems in future M&A transactions A lot of contracts provide that Party A must obtain the prior written consent of Party B if it wishes to assign the agreement to a...
• SCOTX rejects implied obligation not to unreasonably withhold consent to assignment of contract In a recent Texas case, two sophisticated parties in the oil and gas busi­ness — let’s call them Alpha and Bravo — were negotiating a contract....
• Ken Adams and the marketplace of ideas I (used to) comment occasionally at Ken Adams’s blog. Recent examples: Here, here, here, here, and here. Ken and I disagree on a number of issues; some...

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Assignments, Disclaimers and Powers of Appointment

          Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.    

          First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death.  An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest.    Assignments create tax issues for both the assignor and assignee.   

          For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court.  Dad’s estate, less expenses and debts, is distributed entirely to the daughter. 

          If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

          Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors. 

          Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance.  To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest.  A disclaimer is not a gift by the person disclaiming.  Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset. 

          The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit. 

          For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims.  The beneficiary’s living descendants would then inherit by right of representation. 

          Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate.  The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons. 

          For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

          Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney. 

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Assignment: Definition in Finance, How It Works, and Examples

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is an Assignment?

Assignment most often refers to one of two definitions in the financial world:

• The transfer of an individual's rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
• In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.

Key Takeaways

• Assignment is a transfer of rights or property from one party to another.
• Options assignments occur when option buyers exercise their rights to a position in a security.
• Other examples of assignments can be found in wages, mortgages, and leases.

Uses For Assignments

Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, or other asset of value. to another entity through a written agreement.

Assignment rights happen every day in many different situations. A payee, like a utility or a merchant, assigns the right to collect payment from a written check to a bank. A merchant can assign the funds from a line of credit to a manufacturing third party that makes a product that the merchant will eventually sell. A trademark owner can transfer, sell, or give another person interest in the trademark or logo. A homeowner who sells their house assigns the deed to the new buyer.

To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of the object.

A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker's paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.

Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.

A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy . Any rental income would then be paid directly to the lender.

Options Assignment

Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price . The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.

Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option ) or buy (if a put option ) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away . For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.

Suppose a trader owns 100 call options on company ABC's stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.

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Nonprofit Mergers, Consolidations, and Asset Transfers – What’s the Deal?

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Corporate mergers and their legal kin, namely asset transfers and consolidations, sound like business concepts, but they bear enormous potential significance for nonprofit organizations. Nonprofits can use these corporate transitions as powerful strategic options for combining and leveraging shared visions and resources. The following paragraphs cover the basics of nonprofit mergers, consolidations, and asset transfers to help nonprofit leaders determine when such key transitions might be a viable option.

According to a recent report by Urban Institute, “the United States has 1.8 million nonprofit organizations, including 501(c)(3) public charities, private foundations, and a variety of membership and professional organizations.” [1] The sheer number of U.S. nonprofits multiplied by nonprofits’ varied activities may provide attractive opportunities for collaboration between nonprofits. Sometimes, the synergies lead to legal combinations of entities, resources, staff, and programs.

Nonprofits considering such collaborations should evaluate how they advance the respective nonprofits’ missions and interests. For example, nonprofits facing financial challenges might also consider passing the missional baton to a larger organization. Other nonprofits leaders may be thinking in terms of succession planning, with a view to the “next chapter” or the organization’s missions. Still leaders may note complementary functions and resources between nonprofits, which if combined, would yield significantly greater impact than either entity functioning alone.

When nonprofit leaders see the opportunity for collaboration, they may consider a diverse menu of options including simple contracts and memoranda of understanding, shared service agreements, licensing opportunities, partnerships, and joint ventures. The options discussed here – mergers, consolidations, and asset transfers – focus on the complete integrations of entities, their programs, and/or resources.

Keep in mind too that nonprofits are not owned but rather are controlled. Consequently, and although money may certainly be involved (and typically is, such as bank accounts), a merger or consolidation should not involve any sale between the collaborating entities. On the other hand, an asset transfer may involve either a sale of one organization’s charitable assets to another, or instead it may be structured as a donation of charitable assets from one to the other nonprofit.

Nonprofit Merger

In a merger, two (or more) corporations combine to form one corporation. In each merger there will be a “surviving entity” and one or more “disappearing entities.” The surviving entity enjoys the assets and legal rights of both merging organizations and takes on the responsibility of any remaining potential liabilities and legal obligations of both entities. Mergers are statutory functions; the merger must comply with each entity’s applicable state statute. Mergers are also shaped through an agreed-upon plan of merger, in which the future rights and responsibilities as between the surviving entity and the disappearing entity are set forth.

Nonprofit mergers are generally collaborative transactions and are usually intended to combine the respective strengths of two or more organizations to streamline operations or to capitalize on economies of scale. In pursuing a merger, the merging entities ensure that all the assets and rights of the disappearing entity manifest in the surviving entity. This is particularly important with respect to assets that cannot be bought, such as employees and good will.

In a merger, and as may be set forth with specificity in the plan of merger, the programs, activities, operations, and other affairs of the disappearing entity may continue in and through the surviving entity. The surviving entity takes on all contracts of the disappearing entity. The plan of merger may provide that members, directors, officers, and the employees of disappearing entities will receive roles within the new organization.

Along with the assets, cash, and programs of the disappearing entity, the surviving entity assumes the disappearing entity’s liabilities. The surviving entity should thus undertake a robust due diligence phase prior to taking official steps formalizing the merger. The due diligence phase should include a review of all documents pertinent to the legal and financial condition of each participant entity, including any open or threatened litigation, government fines or penalties, IRS Form 940/941s and the status of employer tax payments, IRS determination letters and/or IRS publication 78 material, government investigations, employee disputes, financial reports, current business contracts, political activities, and corporate documents. Care should be taken in the due diligence process to review contracts of the disappearing entity to ensure the surviving entity may properly act as a successor in interest to the agreements. [2] Beyond the paperwork, due diligence steps may include evaluation of internal cultural aspects, anticipated employment changes, and other potential operational shifts.

To effectuate the merger, the merging entities must each approve the plan of merger. The requisite corporate approvals for each step are determined pursuant to each organization’s governing Bylaws, along with the requirements of the applicable state law nonprofit act, particularly regarding notice. Following the entities respective approvals of the merger, the merger documents, called “Articles of Merger,” are typically filed with the state’s corporate record keeper – usually the Secretary of State.

Nonprofit Consolidation

A consolidation is a close corporate cousin of mergers. The Illinois General Not-for-Profit Corporation Act provides that “Any two or more corporations may merge into one such corporation or consolidate into a new corporation.”1 Consolidations effectively allow for two or more disappearing entities to create a new third entity. Consolidations are preferred when the participant entities want a proverbial fresh start – sometimes due to branding considerations, relational aspects, or political factors between the organizations. For example, two organizations may prefer the organizational narrative in which two equal entities pooled their resources to create something new, instead of indicating the subordination of one entity (the disappearing entity) to the other entity (the surviving entity), as in a merger.

The legal effect, however, of a consolidation is very similar to that of a merger. As in a merger, where the surviving entity takes on the assets and liabilities or the disappearing entities, in a consolidation, pursuant to an approved plan of consolidation, the assets and liabilities of all disappearing entities vest in the newly created third entity. The contracts of all entities also generally vest in the consolidated entity too, by operation of law.

Like merging entities, consolidating entities are also well advised to undertake significant due diligence processes before effectuating a consolidation to identify the specific assets and potential liabilities as well as the applicability of agreements by both entities on the consolidated entity. To complete the consolidation, each disappearing entity must approve the plan of consolidation according to each entity’s Bylaws. Following the entities respective approvals of the consolidation, the merger will be filed with state’s the Secretary of State or specific state corollary through the filing of Articles of Consolidation (which, per state, may overlap with Articles of Merger).

Nonprofit Asset Transfers

As an alternative to merger or consolidation, nonprofits seeking to continue their mission through another entity will sometimes consider an asset transfer agreement, followed shortly thereafter by a corporate dissolution of the entity that transfer its assets to the acquiring entity.

Through the asset transfer and dissolution option, the acquiring nonprofit obtains all or nearly all of another corporation’s assets – including its tangible and intellectual property. An asset transfer agreement should be developed reflecting any transfer of cash or other liquid assets, property transfer, enumerated rights of directors, officers, and other stakeholders, employment transitional matters, contractual matters, intellectual property aspects, timing, and related representations and other promises made between the parties. These detailed arrangements are typically negotiated over a period of time, then culminate in a written asset transfer agreement for optimal clarity and mutual understanding. Subject to the agreement’s terms, the transferring entity will likely dispose of any remaining assets pursuant to requirements for dissolution under Internal Revenue Code, section 501(c)(3) or other relevant section under 501(a) and then proceed to dissolve the corporation.

One advantage to the transferee (i.e., the receiving entity, or sometime a buyer) in an asset transfer is that such nonprofit avoids taking on the transferor nonprofit’s liabilities. This aspect may be of enormous significance, particularly if the transferor entity has engaged in high-risk activities (e.g., childcare, summer camp, or other programs involving potential personal injury claims) - and especially for which a statute of limitations may still be running on possible adverse claims.

Additionally in an asset transfer arrangement, the transferee may selectively choose which assets to purchase. This aspect is similarly attractive for the transferee, so that the transferor’s liabilities are not assumed. From the transferor’s perspective, however, such arrangement may not be ideal if it has substantial liabilities, since all liabilities must be resolved (e.g., via full payment or settlement) in order to proceed with a corporate dissolution.

Note too that significant transactional costs may accompany an asset transfer arrangement that are absent from a merger or consolidation, especially where the asset transfers involve real property. For example, as noted above, an asset transfer agreement will need to be carefully developed, with particular attention to identifying assets, contracts, and other operational matters for transfer – and what is to be omitted. Additionally, any conveyance of real estate will require a deed and other instruments of transfer, along with a new property tax exemption application for any tax-exempt property. Similarly, a bill of sale will be needed for any vehicle transfer, and contract assignments will be required to effectuate those transitions.

Plan Wisely

Mergers, consolidations, and asset purchases each provide unique opportunities for nonprofits to continue their missions and collaborate with other like-minded nonprofits. No one-size-fits-all solution thus applies within the nonprofit context. Leaders considering one of these options should discern which transaction structure, both in short-term and long-term impact on the disappearing and surviving entities, best advances its charitable mission. Additionally, they should thoroughly understand the above distinctions, be mindful of their due diligence responsibilities throughout, and consider strengths and weaknesses of each approach to choose the best path forward.

[1] See Urban Institute, Nonprofit Trends and Impacts 2021 .

[2] For more information about merger due diligence considerations, see our law firm’s blog article, Nonprofit Merger Essentials .

Corporate Transparency Act: Nonprofit Compliance

Llcs and nonprofits, a new look at “founder’s syndrome” – are founders really the problem.

Social Security

Program operations manual system (poms).

TN 10 (06-96)

SI 01730.046 Transfer of Assets for Medicaid Purposes

A.  introduction.

The Social Security Act (SSACT) has been amended several times to limit the ability of an individual to dispose of (transfer) possessions in order to qualify for either SSI or Medicaid.

B.  Definitions

1.  income.

Income for transfer purposes has the same meaning as it does in the SSI program. (See SI 00810.005 for the definition of income for SSI purposes.)

2.  Resources

Resources, as used by the State Medicaid agencies for transfer and Medicaid trust purposes, mean not only countable resources for SSI purposes, but in the case of institutionalized individuals, also the home and contiguous property that may be excluded for SSI.

3.  Assets

Assets include not only income and resources of an individual and spouse described above, but also any income or resources to which the individual or spouse is entitled but does not receive because of action by the individual, spouse or some other person or entity acting on behalf of or at the request of the individual or spouse. (For example, an individual may arrange to have an annuity to which he/she is due paid to a third party to artificially reduce apparent assets.)

Transfers are also referred to as disposal; resources that are transferred may be referred to as disposed resources or disposal of resources.

4.  Nursing Facility Level Services

In this section, “nursing facility level services” refers to the level of care received in a nursing facility or the level of care in an institution equivalent to that of nursing facility services or home or community based services furnished under a waiver under sections 1915(c) or (d) of the SSACT.

C.  Policy — Effect on SSI

From March 1, 1981 through June 30, 1988, a transfer (i.e., giving away or selling) of nonexcluded resources for less than fair market value (FMV) resulted in the individual being charged with the difference between the FMV of the resource and the amount of the compensation received (i.e., the uncompensated value) for a period of 24 months from the date of the transfer. Loss of SSI eligibility because of such a transfer could also cause a loss of Medicaid eligibility in those States in which Medicaid eligibility results from SSI eligibility. From April 1, 1988 through June 30, 1988, the penalty for transfers could be waived because of undue hardship. The 1981 - 1988 transfer rules are explained in SI 01150.100 ; the exception to those rules, rebutting the presumption of the reason for the transfer, is explained in SI 01150.120 — SI 01150.127 .

Starting July 1, 1988, transfers of resources only affected eligibility for certain Medicaid services, not for SSI. (See SI 01150.110 for a description of the provision that went into effect on July 1, 1988.)

The Medicaid transfer rules have been broadened and clarified effective October 1, 1993. However, they only have a direct effect on Medicaid, not SSI eligibility.

D.  Policy — Effect on Medicaid

1.  march 1981 -june 1988.

SSI ineligibility for up to 24 months based on counting the uncompensated value of the transferred resource would result in ineligibility for Medicaid if eligibility for Medicaid was based on SSI eligibility. Application of this rule was subject to a rebuttable presumption, and beginning in April 1988, a potential waiver for undue hardship. Medicaid also had its own transfer penalty that was optional for States.

2.  July 1988 - September 1993

A.  policy.

Disposal of resources at less than FMV could affect eligibility for certain Medicaid services for up to 30 months from the date of transfer. Transferred resources reviewed under this provision would not be countable for SSI purposes.

b.  FO Development

When FOs discovered that resources were disposed of for less than FMV, they developed the transfer and informed the State as described in SI 01150.110E. The State then determined whether a transfer should be counted or excepted under one of the exceptions listed in the SSACT such as undue hardship. In section 1634 States, FOs still developed assignment of rights (see SI 01730.040 ) and third party liability (see SI 01730.045 ) after discovering a transfer, as the State"s finding that disposal of resources at less than FMV would at worst result in a loss of eligibility for nursing facility level services, not complete Medicaid ineligibility. Also, the transfer could fall within an exception under the SSACT, and thus not result in a penalty.

c.  Effect of Transfer

A transfer could result in a State Medicaid agency deciding that an individual was not eligible for nursing facility level services for a period of time. However, the Medicaid agency could not impose a penalty if the transfer qualified for an exception listed in the statute, e.g., if the penalty would work an “undue hardship.” The State agency determined the period of ineligibility by dividing the amount of the uncompensated value of the transfer by the average monthly nursing home cost in the State or locality. The period of ineligibility for nursing facility level services could not exceed a cap of 30 months. This rule remains in effect for transfers which occurred before August 11, 1993.

3.  October 1993 On

Effective October 1, 1993, for transfers of assets on or after August 11, 1993, ineligibility for nursing facility level services (and at the State"s option, ineligibility for certain other services for noninstitutionalized individuals) will occur for a number of months (see b. below, Effect of Transfer) if there has been a:

transfer or disposal of an asset for less than its FMV on or after a "look back" date which is 36 months before the first date the individual is both institutionalized and has applied for Medicaid, (or for the noninstitutionalized, the look back date is the date on which the individual applies for Medicaid, or if later, the date of the transfer for less than FMV), or

trust established by the individual (other than by will) on or after a look back date which is 60 months before the dates specified above for institutionalized and noninstitutionalized individuals. This penalty applies when payments are made from:

a revocable trust to (or for the benefit of) someone other than the individual, or

in the case of an irrevocable trust, no payment could under any circumstances be made to the individual from the trust. In the case of this type of irrevocable trust, only those portions of the trust from which no payments could be made to the individual are considered as transferred, or

irrevocable trust established by the individual (see SI 01730.048B.2. ) other than by will on or after a look back date which is 60 months before the dates specified above for institutionalized and noninstitutionalized individuals, if payments are made from the trust to someone other than the individual.

The 1993 legislation contains several specific exceptions for certain transfers, some of which involve trusts. It also requires CMS and each State to establish and use specific rules for waiving the transfer of assets provision because of undue hardship.

b.  Effect of Transfer

The number of months of ineligibility resulting from a transfer is equal to the total cumulative uncompensated value of all assets transferred on or after the look back date divided by the average monthly nursing home cost to a private patient in the State or locality. Effective October 1993 for transfers occurring on or after August 11, 1993, there is no “cap” on the resulting number of months of ineligibility for these services.

EXAMPLE: An individual transfers $300,000 in a locality where private nursing home costs average $3,000 a month. The State divides the amount of the countable transfer by the locality"s average private nursing home cost. The individual is not eligible for Medicaid coverage of nursing facility level services for 8 years and 4 months (i.e., 100 months).

An individual"s SSI eligibility is unaffected by such a transfer. However, the FBR for an SSI beneficiary who transfers assets on or after August 11, 1993, as described above and who resides in a Medicaid institution is $30 plus applicable federally-administered optional State supplement (see SI 00520.011 ).

E.  Policy — New Transfer of Assets Trust Exceptions

As described above, the revised transfer of assets provision also applies to certain trusts. However, the new linkage between transfer of assets and trusts also contains new specific trust exceptions which could be a benefit for recipients of large retroactive SSI payments. (See SI 01730.048 for more information.)

F.  Procedure — Informing Applicants and Recipients

NOTE: Under the terms of section 1613(c) of the Social Security Act, SSA must inform SSI applicants and recipients about the transfer of assets provision in all States.

Effective immediately, destroy all office copies of SSA Publication No. 05-11041 showing a form date before 1996 and hand out reproductions of the language in SI 01730.047 at application interviews instead. For redeterminations, line through page 2 of Form SSA-3073, “Important Messages from Your Social Security Office” and provide reproductions of the language in SI 01730.047 instead.

G.  Procedure — Developing and Documenting

If an individual alleges a transfer of assets or the existence of a trust which does not affect SSI eligibility but might affect Medicaid eligibility, it must be documented. Obtain an allegation of a transfer on a signed SSA-795 whenever possible (and on a Report of Contact when the individual will not sign). Copy any trust information provided. Follow the guidelines in SI 01150.110 and regional and local procedures.

H.  Procedure — Section 1634 States

NOTE: Transfers of assets do not affect SSI eligibility and do not necessarily cause Medicaid ineligibility.

In section 1634 States (see list in SI 01715.020 ), complete the assignment of rights item on the application or form SSA-169 when appropriate regardless of the individual"s transfer allegation. Similarly, complete third party liability development (see SI 01730.045 ) and form SSA-8019-U2 when appropriate for these individuals.

Do not advise an individual as to whether a particular alleged transfer or a trust will affect the individual"s Medicaid coverage.

I.  Procedure — Restricted Payments

For institutionalized individuals whose Medicaid eligibility is affected by a transfer of assets, the State will inform the FO when to apply the $30 (plus any federally-administered optional State supplement) payment limit after a transfer has occurred as described in SI 00520.012 .

J.  References

Assignment of Rights, SI 01730.040

Income for SSI Purposes, SI 00810.005

Payment Limit Due to Medicaid Transfer of Resources Penalty, SI 00520.012

Third Party Liability, SI 01730.045

Transfer of Assets Language, SI 01730.047

Transfer of Resources for Less Than Fair Market Value before October 1, 1993, SI 01150.100 - SI 01150.110 .

Trusts and Medicaid, SI 01730.048

Trusts for SSI Purposes, SI 01120.200 .

• Notifications

Master Directions

The transferor(s) should also make appropriate disclosures with regard to the quantum of excess provisions reversed to the profit and loss account on account of sale of stressed loans. Also, the lenders should disclose the distribution of the SRs held by them across the various categories of Recovery Ratings assigned to such SRs by the credit rating agencies.

87. Transferors shall report each loan transfer transaction undertaken under these directions to a trade reporting platform as notified by the Reserve Bank. The detailed instructions in this regard will be issued separately. In anticipation of the same, lenders shall maintain a database of loan transfer transactions with adequate MIS concerning each transaction till the reporting platform is notified and the related instructions are issued.

Chapter VI: Repeal of circulars

88. The list of circulars / directions / guidelines / parts of Master Directions that stand repealed with immediate effect is given below:

Entities to which lenders are permitted to transfer stressed loan exposures under Clause 58 of these directions

1. Scheduled Commercial Banks;

2. All India Financial Institutions (NABARD, NHB, EXIM Bank, SIDBI and 17 NaBFID );

3. Small Finance Banks;

4. All Non Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs);

5. Asset Reconstruction Companies registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

6. A company, as defined in sub-section (20) of Section 2 of the Companies Act, 2013 other than a financial service provider as defined in sub-section (17) of Section 3 of the Insolvency and Bankruptcy Code, 2016. Acquisition of loan exposures by such companies shall be subject to the relevant provisions of the Companies Act, 2013.

1 Amended vide amendment dated December 05, 2022

2 Amended vide amendment dated December 05, 2022

3 Inserted vide amendment dated December 28, 2023

4 Inserted vide amendment dated December 05, 2022

5 Amended vide amendment dated December 05, 2022

6 Inserted vide amendment dated December 05, 2022

7 Amended vide amendment dated December 05, 2022

8 Inserted vide amendment dated December 28, 2023

9 Amended vide amendment dated December 05, 2022

10 Amended vide amendment dated December 05, 2022

11 Inserted vide amendment dated December 05, 2022

12 Amended vide amendment dated December 05, 2022

13 Amended vide amendment dated December 05, 2022

14 Deleted vide amendment dated December 05, 2022

15 Inserted vide amendment dated December 05, 2022

16 Amended vide amendment dated December 05, 2022

17 Inserted vide amendment dated December 28, 2023