There is a big question often on the mind of a business owner: How can I ensure my trusted loved one will be able to take over this company, a prized legacy that has supported our family for so long? Finding a suitable answer is often a critical part of estate planning.
One possible strategy to consider is the use of a living – also known as a revocable – trust.
Putting a business in a living trust
Placing a business into a living trust is, in effect, removing the legal ownership of the business from your estate. By doing so, the business is protected from going through the potentially lengthy, public probate process. It may also help reduce your estate’s tax obligations.
Once the business is transferred over, the trustee – a person or third party whom you select – owns it. The business is still to be operated for the benefit of the trust’s beneficiaries.
After the business owner passes, the assets in the trust can transfer to the named beneficiaries. If you named two adult children involved in running the company as beneficiaries, for example, the business interests in the trust would go to them.
Potential benefits of a living trust
There are a few potentially significant benefits to utilizing a living trust. First, because the business is no longer part of your estate, it does not have to go through probate. Beneficiaries take ownership of the business relatively quickly. This also avoids some of the possible disruptions to the company’s operations that may come with probate.
A living trust also helps maintain some privacy with the proceedings. Unlike probate, which is a public procedure, the transfer of assets via trust can be done quietly, without revealing much to outside eyes.
There are financial considerations as well. Using a trust may help avoid certain estate taxes. In addition, there may be ways to protect the business from creditors, ensuring they can’t take a bite out of your legacy.
Lastly a revocable trust – unlike an irrevocable trust, which takes effect upon one’s death – can be altered. If you feel changes to the set-up are needed, you can make them happen.
Of course, whether a living trust is the right solution depends on your particular circumstances and personal goals. Estate planning, particularly for business owners, is not something to take lightly. It’s important to consider all your options before making a decision.