Increasingly, people are using living trusts rather than their wills to pass on the bulk of their assets to their family and other beneficiaries. The primary advantage of a living trust for most people is that assets in it typically don’t have to go through probate. As we noted in a recent post, this allows assets to pass directly to the beneficiaries.
This can save time and expense for surviving loved ones. It also helps maintain privacy since there are fewer court documents. Among the assets that people most commonly place in their living trusts are homes and other real estate, cars, boats and bank accounts.
The person who sets up a revocable living trust is typically the trustee while they’re still alive. That means they have control over the assets and can add and remove assets from the trust throughout their life.
What if you own a business? Can you place that in a trust? If you can, is it a good idea to do so? That depends on a number of factors that are unique to your business and your needs and goals. One of these factors is the type of business you own.
Sole proprietorships
If your business is a sole proprietorship, placing it in a living trust can help it continue to run after you’re gone without the probate court having to get involved. Of course, you’ll still need to determine who will be responsible for it and ultimately whether you want it to continue or be sold. This is typically the easiest business structure to place in a living trust.
Partnerships
Unless your partnership agreement prohibits transferring your share of the business to a living trust, you likely have the option to do this. You’ll need to determine that. It’s also best to discuss your intentions with your partner(s).
Limited liability companies
If you have an LLC, you’ll want to look at what the operating agreement says. You’ll probably need to get the approval of a majority of the owners. If you do transfer your share of an LLC into a living trust, you’ll still continue to have your voting authority. However, the ownership (as with all assets in a living trust) is the trust itself.
These are just a few things to consider if you’re a business owner considering including your company (or your share of it) in a living trust. One of your first steps should be getting experienced legal guidance based on your unique situation.