Variable Prepaid Forward Contracts

DEFINITION of 'Variable Prepaid Forward Contracts'

An agreement to give a predetermined number of shares to a brokerage firm, with the stipulation of officially transferring title at some future date. The original owner receives a high percentage of the value of the shares at the time of transfer and receives a portion of the gains at the official transferring. If there was a loss during this time period, the brokerage absorbs it.

BREAKING DOWN 'Variable Prepaid Forward Contracts'

Variable prepaid forward contracts are often used by investors to lock in their profits and defer their taxes. In return for giving the stock to the brokerage company, the investor usually gets between 75% and 90% of the current value. So the investor receives cash now, but doesn't actually have to account for the income until the official transfer is complete. Some think this should not be allowed because technically a transfer has occurred, and should therefore be recognized for tax and regulatory reasons.

RELATED TERMS
  1. Telegraphic Transfer - TT

    An electronic method of transferring funds. Telegraphic Transfers ...
  2. Transfer

    A change in ownership of an asset, or a movement of funds and/or ...
  3. Transfer Tax

    Any kind of tax that is levied on the transfer of official documents ...
  4. Current Transfers

    A current account transaction in which a resident entity in one ...
  5. Direct Transfer

    A transfer of assets from one type of tax-deferred retirement ...
  6. Wire Transfer

    An electronic transfer of funds across a network administered ...
Related Articles
  1. Personal Finance

    Transferring Credit Card Balances To A New Card

    Before you take advantage of that new credit card's 0% interest balance transfer offer, read our step-by-step guide.
  2. Retirement

    Variable Prepaid Forward Contract: Scam Or Safety Net?

    Top executives can benefit from this kind of contract, but is it at the expense of the shareholders?
  3. Investing

    2015's Best Balance Transfer Credit Card Promotions

    Trying to pay off a credit card balance at too high an interest rate? You might save a good chunk of cash with one of these balance transfer promotions.
  4. Personal Finance

    Best Ways to Send Large Sums of Money Abroad

    Understand why it may be difficult to send large sums of money internationally. Learn about the top five ways to send large sums of money abroad.
  5. ETFs & Mutual Funds

    What Does a Transfer Agent Do?

    Transfer agents maintain the records and documents related to shareholder accounts.
  6. Personal Finance

    Sending Money? The Top Money Transfer Services

    Need to send money in a hurry? Here's a list of the major players in the money transfer business. Compare rates, times and other details before deciding.
  7. Personal Finance

    Understanding The Insurance Transfer-For-Value Rule

    If you are banking on your life insurance payout being tax-free, you may be in for a surprise.
  8. Financial Advisor

    4 Ways To Minimize Estate Taxes

    These four strategies will ensure that most of your money goes to your loved ones, and not to the government.
  9. Managing Wealth

    What's a Brokerage Account?

    A brokerage account is a contractual arrangement between an investor and a licensed securities broker or brokerage.
  10. Personal Finance

    Shuffle Away Your Debt With Balance Transfers

    This option can save you big bucks, but only if you watch out for rates and fees.
RELATED FAQS
  1. Will there be any penalty if I transfer my funds to a motif?

    I have funds with TD, and I just recently sold all my stocks, so I have about $24,000 in cash just sitting there. Can I transfer ... Read Answer >>
  2. Are there any regulations on transfer pricing?

    Learn about transfer pricing, its role in intra-business calculations, and how the U.S. government regulates transfer pricing ... Read Answer >>
  3. Is this stock certificate worthless?

    I bought 50,000 shares of restricted common stock from a company in December 2015 and received a stock certificate. I then ... Read Answer >>
  4. How do you transfer common stock from one broker to another?

    Understand how common stock assets are transferred from broker to broker using the Automated Customer Account Transfer Service ... Read Answer >>
  5. Can I give stock as a gift?

    Stocks, bonds or any other securities can be transferred as gifts. Giving the gift of stock also has benefits for the giver. ... Read Answer >>
  6. How does transfer pricing help business?

    Explore several ways that transfer pricing helps businesses. Transfer pricing can often help streamline accounting and business ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center