The answer to the title question depends on a few factors, but, in general, yes —your trust can own your business after you die. There are several factors to consider, including the type of business and the type of trust. Is your business a limited liability company (LLC), a partnership, a corporation, or a sole proprietorship? You will also need to consider how your company is managed. It can be managed as an LLC, a partnership, or a corporation.
Types of Business Entities
A trust can receive ownership of your business interest, if it is an LLC, when you execute an assignment of interest. If you are the LLC’s sole member, then after you have executed 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 own only the percentage of the business that you own. For example, if you have a 25 percent ownership interest in an LLC, your trust will own 25 percent. If your LLC issues membership certificates, you should submit your assignment document to the LLC and have new membership certificates issued in the trust’s name.
As with an LLC, a partnership interest is transferred to a trust by an assignment of interest. It is important to review any partnership agreement. This can determine if there are restrictions or conditions, such as consent requirements, to a transfer.
If your company is a corporation, you should contact the corporation. They can determine what documentation will be needed 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. Submit this document to the corporation so that new stock certificates can be issued showing that the trust owns the stock. As with other types of business, always check the corporate governing documents. There may be restrictions or other conditions on making a transfer to your trust.
If you are a sole proprietor, you have not created a legal business entity that needs to be transferred. You will simply transfer ownership in the same way as you would any other assets that are in your personal name.
Managing the Business
You must define how the business is managed after it has been transferred to a trust. Management will depend on several factors. These factors include the type of business being transferred and how it was managed prior to the transfer. In general, here are a few management considerations to keep in mind:
The trustee will own the interest after the interest has been transferred to a trust. If the interest is a single-member LLC where the member runs the business and is also the trustee, the trustee would continue to run the business’s day-to-day affairs, just like prior to the transfer. After the member’s death, the successor trustee would manage the business. This may vary if the trust and operating agreements specified otherwise, or if management duties have been delegated to another person. If the business interest is a multimember LLC where the member has not participated in day-to-day management decisions and such decisions have been delegated to a manager, the LLC would continue to be managed by the manager both prior to and after the member’s death.
In a partnership where the partner participated in day-to-day management and has now transferred their ownership portion to a trust of which they are the trustee, 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 business. However, there can be exceptions if the trust and partnership agreements specify otherwise, or the trustee has delegated their management duties to another person. If the partnership has delegated these duties to its officers or employees, then the trustee will likely continue to allow them to manage the business.
After transferring the corporate stock to the trust, the trustee, as the owner, will be entitled to vote on that stock according to the terms and conditions of the corporation’s governing documents. Normally, a transfer of stock to a trust will not change the corporation’s management.
Special Note About S Corporations:
If your company is taxed as an S corporation, there are special rules about who can own an S corporation. Work with a qualified legal or tax professional prior to transferring ownership of your S corporation into a trust. Your attorney and tax professional may need to work together to legally move your S-Corp business to your trust.
Although your trust can own your business after you die, there are many factors to consider. Other important factors to think about include how beneficiaries will access trust funds after death. The trust can be setup to receive income or profit distributions to owners or stockholders. The trust agreement’s terms will determine if that income is distributed to the beneficiaries, and on what terms.
Setting up your business in the name of your trust is absolutely possible. However, there are many factors to consider. It is important to consult with an attorney who has experience with business organization and structure. The attorneys at Michaelson Law are here to help with all your business and estate planning needs.