Can I put my business into a trust?
It's a little more advanced strategy for business owners, a way in which they can put their business into a trust. So it's the intersection of estate planning and business law. It's a way that can get you some major tax advantages and some control over your estate plan that benefits that you have that non business owners won't always have.
Many times, you're going to come to an attorney and say, "Listen, I've started my business, what are the next steps?" It's important at this stage to talk to your attorney and your accountant. If you're considering a trust, maybe it's the first you've heard of it. Or maybe you've talked to a friend or a mentor who was putting their business into a trust. You want to make sure you go over it with an attorney or an accountant and your financial adviser to make sure that it's the best next step for you and your business. This is one of the biggest advantages of working with professionals. This isn't an issue you're gonna find on Legal Zoom. This isn't something some website is going to give you a form for. This is more of an advanced planning technique that professionals can help you work with to get the most out of your business.
How Do I Put My Business in a Trust?
Clients will ask me, "I've heard about putting my business into a trust, but I don't know what to do. How do I do it? So how does it work?" There are some common traits of putting your business in a trust that you need to know about:
- The trust is going to be the owner of the business ~ as opposed to your name being on it, it willl be the name of the trust as the owner. What this does is the assets of the business do not come to your estate when you die. There's no probate court involved because everything will pass through the trust.
- We set up the trust with all the important people, trustees and successor trustees, and beneficiaries ~ and actually, you can be the trustee as the business owner and this can create a succession plan in the trust for your business assets when you're gone.
- Choose a type of trust - a revocable trust or an irrevocable trust ~ Business owners don't usually use the irrevocable trust when putting their business into it, because then you can't make any changes down the road. So for most of my clients, the way we're going to approach this is to create up a revocable living trust as the owner of the business. It sounds simple enough, but the reality is, there are a few issues you have to watch out for.
- Do you need a trust? ~ If you have a really basic business and you're not really worried about taxes, maybe you're just running a sole proprietorship and you're not even incorporated, then you probably aren't in the right place to need a trust for your business. You also need to consider that you can't be the only beneficiary because then you're defeating the purpose of the trust. So you can have other family members who are also beneficiaries of the trust. But this can create an issue if you end up in a divorce. And so if your soon-to-be ex-spouse is one of the beneficiaries that can become an issue in any divorce.
- Cost of a Third-Party Trustee ~ The other thing is if you don't want to be the trustee, and you have somebody else manage the trust as a third party trustee, you're going to have to pay the fees for the work that has to be done, because there's more complex accounting, more work to be done on top of the business and the trust at tax time. So if you use a third party, they're going to want to be compensated for that. But the upside of all this is you can also use this mechanism to save you on taxes with the way that the money is distributed from the business into the trust and then when or how the trust is distributed to you individually.
Now, if none of this is making sense to you, or if this seems a little too complicated, it probably should be. Again, this is not a simple strategy that just anybody can use. So work with your advisors, talk to your accountant, your financial adviser, talk to your attorney about whether or not it makes sense for you to put your business into a trust. If you want to get the process rolling, let's set up a Legal Strategy Session. It's a 15 or 20-minute phone call to discuss where your business is, whether it makes sense to create a trust for your business, and give you some next steps to make it happen.