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? Another consideration is how your business is managed; is your business managed as an LLC, a partnership, or a corporation? The answers to these questions will help determine the best course of action for setting up your business in the name of a trust.

How Does a Trust Get Ownership of a Business?

• LLC: If your business is an LLC, a trust can receive ownership of your business interest 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.
• Partnership: 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 to determine if there are restrictions or other conditions, such as consent requirements, to a transfer.
• Corporation: If your business is a corporation, you should contact the corporation to 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. You should 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 to determine if there are restrictions or other conditions on making a transfer to your trust.
• Sole Proprietor: If you own your business as a sole proprietor, you have not created any separate legal business entity that needs to be transferred. To transfer ownership of your business’s assets to your trust, you will simply transfer ownership in the same way as you would any other assets that are in your personal name.

How Is the Business Managed in a Trust?

It is important to define how the business is managed after it has been transferred to a trust. Management will depend on several factors, such as what kind of business is transferred and how that business was managed prior to the transfer. In general, here are a few management considerations to keep in mind:

• LLC: After a business interest has been transferred to a trust, the trustee will own the interest. 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 unless the trust and operating agreements have specified otherwise, or the trustee has delegated their business management duties 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.
• Partnership: 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 unless 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 depending on what the trust and partnership agreements direct, the trustee will most likely continue to allow the other officers/employees to manage the business, both prior to and after the partner’s death.
• Corporation: 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 business is taxed as an S corporation (reminder that 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 important to seek the advice of a qualified legal or tax professional prior to transferring ownership of your S corporation business interest to a trust. It may be important for your tax professional and estate planning attorney to work together to legally move your S-Corp business to your trust.

 

Next Steps: Estate Planning and Your Business

Although your trust can own your business after you die, you must consider many factors when transferring your business ownership interest to your trust. 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. Whether that income is distributed to the beneficiaries, and on what terms, will depend on the trust agreement’s terms.

Setting up your business in the name of your trust is absolutely possible. However, there are many factors that will impact how that trust should be set up, including the type of business, type of management of the business, beneficiaries, and more. It is important to consult with an estate planning attorney who has experience with business organization and business structure. The estate planning attorneys at Michaelson Law will ensure that you have considered all factors and help you properly complete transferring your business into the name of your trust, as well as many other complex estate planning matters.