Business Interests Must Be Included in Your Estate Plan
Many people today are operating a business. Some simply own rental property under their name, others work full time for themselves. Regardless, forming a business entity, such as a Limited Liability Company (LLC), is highly recommended to protect personal assets from any business-related liability. As long as it is properly formed and maintained, only the business entity itself (the LLC) is liable for contracts and any other legal obligations of the business, not the business owner(s) personally. In other words, LLC owners (otherwise known as members) can keep their personal assets, such as their house, car, personal bank accounts, and investment accounts protected in case of a lawsuit or the business failing to meet its obligations.
Because of this protection, many people have formed businesses, the LLC being one of the most popular. However, many of these business owners have not considered how their business assets will transfer in the event of death or what would happen if they lost some level of mental capacity. Without proper planning, business assets, like personal assets, will require a probate in order to be transferred after death. Probate is a court-supervised process, that can be time-consuming and expensive, which is used to ensure that assets pass to the correct beneficiaries.
How do you include business assets in your estate plan?
Creating a Trust and moving assets into the Trust is a method to avoid probate. A Trust is a legal document that an individual or couple may create which allows the Trust to own personal as well as business assets. This way, upon death or incapacity, it is clear who is in control of the assets and who is to ultimately receive them. The Trust keeps the transfer of assets out of probate court. This provides the added benefit of privacy and utilizing a Trust can even minimize estate taxes and provide a level of asset protection. This is why business owners need to make sure they have a complete estate plan that includes a Trust.
Next Steps to Protect Your Personal and Business Assets
At Rilus Law, we commonly find that clients are operating a business without the protection of a properly formed business. Therefore, as part of our estate planning process, we help clients form LLCs, create a Trust, and help them transfer business assets into their LLC and personal assets into their Trust. When forming an LLC, we list the client’s Trust as the LLC owner/member, as opposed to themselves individually. This way, when a death of a business owner does occur, the business has someone (their trustee) who can step into their shoes. The trustee can carry out the responsibility to the company and have the authority to liquidate business assets and distribute them according to the Trust terms, without the need for a probate.
What if you already have an LLC?
For those who have already established a sole or jointly owned LLC but do not have a Trust, we provide them with a customized Trust and update their existing LLC to list the Trust as the owner/member. For those who own only a portion of a business entity, before transferring their interest into a Trust, they should first check to make sure this transfer would not violate any agreement between the business owners.