Business Trust

Why Some People Transfer Their Business Interests To a Living Trust

Some people who own interests in a small business want to arrange their legal affairs so that there is no interruption in the business when the business owner dies.

When an LLC owner or an owner of a privately held corporation dies, the ownership interest must be handled through the court-supervised Succession or probate procedure before business can continue. To avoid business disruption, or just to make it simpler for the business to be transferred after the death of a business owner, the business owner, during his or her lifetime, will transfer or assign their ownership interest to their living trust. When the business owner dies, the Successor Trustee can continue managing the business, or the Successor Trustee can immediately transfer the business interests to the appropriate trust beneficiaries.

Note that if you own an LLC, then your ownership interest is called a "membership interest." If you own stock in a privately held corporation, you will be a stockholder of either a C or S Corporation.

Give us a call at 866-491-3884 if you're interested in making it simple for your loved ones to continue managing and owning your business interests.

How To Leave the Family Business

I was working with a couple from the Lafayette area this week. They had four children. Two of their children worked in their business and the other three children did not. They were very sensitive to the fact that the two sons "in the business" should inherit the business when Mom and Dad pass away.

The mother, in particular, was emotional about wanting to set up an estate planning legal program that was "fair" to all of their five children. The couple know that their business was valuable, and Mom felt that if they left the business to the two children who were in the business, and left everything else to the five children, then that would not be "fair" because the children getting the business would be getting significantly more than their other three children. 

They did not want to short change their other three children simply because those three children were not suited to work in the family business. One solution Dad had already created was to purchase life insurance that would go to the three children who were not in the business. But still, the life insurance death proceeds would not be enough to "compensate" the other three children for not getting any of the business value.

We discussed a number of alternatives. One of the alternatives we discussed was to structure the ownership of the business so that after Mom and Dad died, the business (it's actually three businesses) would be in a trust. The two children in the business would continue working in the business and would continue to collect salaries. However, when the business would later sell, the sales proceeds of the business would be shared by all five children.

This alternative seemed to resonate with the parents as a way to fairly provide for the transition of their business to the next generation while being fair to each of their five children. This arrangement can be tricky and we are still working out the details.

If you own a business and want to make sure that it passes to the right people the right way, you may want to give us a call and schedule a time to discuss your alternatives so that you can leave a legacy rather than leave some massive headaches to your loved ones.