Your trust can own your business after you die. Trust ownership of a business can avoid probate and maintain management continuity after an owner's passing. However, several considerations may impact the answer to this and the following questions. One consideration is the type of business interest you own. Is your business a limited liability company (LLC), a partnership, a corporation, or a sole proprietorship? Another consideration is how you manage your business. Do you operate your business as an LLC, a partnership, or a corporation?
If your business is an LLC, a trust can receive ownership of your business interest when you execute an assignment of interest. In the event that you are the LLC’s sole member, then after you have completed the transfer document assigning your interest to the trust, the trust will own 100 percent of your business. If your LLC has other members, your trust will hold only the percentage of your business. For example, if you have a 25 percent ownership interest in an LLC, your trust will own 25 percent. It is essential to review the LLC’s operating agreement to see what restrictions there are on transferring your interest. Also, some operating agreements require the other members’ consent before transferring. If your LLC issues membership certificates, you should submit your assignment document to the LLC. Then you will have the LLC issue new membership certificates in the trust’s name.
As with an LLC, you transfer a partnership interest to a trust by an assignment of interest. Again, it is essential to review any partnership agreement. You will want to determine if there are restrictions or other conditions, such as consent requirements, to a transfer.
If your business is a corporation, you should contact the corporation to determine what documentation you will need to transfer your stock to your trust. For closely held corporations without specific documentation requirements, you can transfer your stock to your trust by executing an assignment of stock. You should submit this document to the corporation. The corporation can then issue new stock certificates showing that the trust owns the stock. As with other business interests, you should check the corporate governing document. You would want to determine if there are restrictions or other conditions on making a transfer to your trust.
Maybe you own your business as a sole proprietor. In that instance, you have not created any separate legal business entity you need to transfer. To transfer ownership of your business’s assets to your trust, you will simply transfer ownership like any other assets in your name.
How you manage the business after transfer to the trust is very fact-specific and will depend on several factors. These factors include what kind of business you transferred and how you managed that business before the transfer.
The trustee will own the interest after transferring a business interest to a trust. If the interest is a single-member LLC where the member runs the business and is also the trustee, the trustee will continue to run the business’s day-to-day affairs, just like before the transfer. After the member’s death, the successor trustee would manage the company. But, the trust and operating agreements could specify otherwise. Alternatively, the trustee could have delegated their business management duties to another person. If, however, the business interest is a manager-managed multimember LLC, the member may not participate in day-to-day management decisions. In this case, the owners have delegated such decisions to a manager. Therefore, the LLC would continue to be managed by the manager before and after the member’s death.
Consider the case of a partnership where the partner participates in the day-to-day management. They may transfer their ownership portion to a trust of which they are the trustee. In that instance, the trustee will continue to manage the business as before the transfer. As with an LLC, after the partner’s death, the successor trustee will step in to manage the company. But, the trust and partnership agreements could specify otherwise. Perhaps the trustee has delegated their management duties to another person. However, maybe the partnership has delegated these duties to its officers or employees. In that case, it will depend on what the trust and partnership agreements direct. If the trustee may continue to allow the other officers/employees to manage the business. So continuity of management would continue both before and after the partner’s death.
After transferring the corporate stock to the trust, the trustee, as the owner, will be entitled to vote that stock. The trustee will do so according to the terms and conditions of the corporation’s governing documents. Usually, a stock transfer to a trust will not change the corporation’s management.
The trust’s terms will determine what the beneficiaries are entitled to receive. The trust could receive income or profit distributions to owners or stockholders. Whether the trust distributes that income to the beneficiaries and on what terms will depend on the trust agreement’s terms.
If you elect to have your business taxed as an S corporation (and you do not have to be a corporation to be taxed as an S corporation), there are special rules about who can own an S corporation. It is crucial to seek the advice of a qualified legal or tax professional before transferring ownership of your S corporation business interest to a trust and after the death of the grantor/trustmaker.
Your trust can own your business after you die. But, you must consider many factors when transferring your business ownership interest to your trust. Therefore, it is essential to consult a qualified professional. You will want to ensure that you have considered all the factors and help you correctly complete the transfer.
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