Placing Small Business Interests in a Living Trust
If you are a small business owner, you can benefit from the use of a living trust in some unique ways. Attempting to deal with transferring or even operating a small business during the probate process can be a significant challenge—in such a circumstance, your executor will need to keep the business afloat for months on end under court supervision.
By using a living trust, you can transfer your business interests to your beneficiaries much more efficiently after your death, which makes for a much smoother transition to your successor and helps you ensure the business will continue to run smoothly.
The issues you must deal with when transferring your business interests into a living trust can vary, depending on the type of business structure you have:
- Sole proprietorships: If you operate your company as a sole proprietor, this means you hold your business assets in your own name. Here, the transfer of business property into your trust occurs in exactly the same way as any other type of property you own. In addition to your business assets, you should also transfer the name of the business into the trust.
- Partnership: If you have partners with whom you run your business, you can transfer your share in the partnership to your living trust. If you have a partnership ownership certificate, you will need to modify that certificate to name the trust as the owner of the share, rather than you as an individual. There are some circumstances in which partnership agreements prohibit transfers to living trusts, though these stipulations are not very common. If this does apply to you, though, you and your partners will want to consult with an attorney before modifying the certificate.
- Limited liability company (LLC): If you run a small business as an LLC, you will need a majority of the owner owners (or all, depending on your operating agreement) before you’re allowed to transfer your interest in the company to a living trust. As the trustee of your trust, you will still have the authority to vote on decisions for the LLC—the ownership share will just technically fall to the trust instead of you individually.
- Closely held corporations: Closely held corporations differ from your standard C-corporations and S-corporations in they are not allowed to publicly sell or trade shares. Instead, all the shares are owned by either one person or a small group of people who play an active role in managing the business and keeping up with its day-to-day operations. You are usually able to transfer any shares you hold in a closely held corporation by listing your stock in the trust document and reissuing the stock certificates in your name as the trustee rather than the owner. Just be sure you check any shareholders’ agreements or bylaws that are relevant to ensure you have the right to do this.
For further advice and instruction about placing small business interests into a living trust, we strongly recommend you meet with an estate planning attorney.
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Misha Gill is an Alexandria estate planning attorney for his firm, Speedwell Law, PLLC. If you would like assistance in setting up your own will, living trust, and other estate planning documents, Misha can be reached at (703) 553-2577 or [email protected].
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