Living trusts are designed to help you determine how and when your business ownership interests will be divided in the event of your death, much like wills do for your personal assets. The trust may also determine a line of succession for your business and dictate which employees are to assume certain roles if you are no longer able to do so yourself. If you are considering establishing a living trust for a small business, you may be wondering how it works, what it means and what steps you will need to take to get the job done.
In addition to ensuring that your business can both survive and run smoothly in the event of your untimely death, establishing a trust offers many benefits.
Reducing the amount of business taxes owed
Establishing a trust is a common way to reduce your business' tax obligations, and while it is not going to keep you from having to fork over federal estate taxes, it will likely reduce the amount of state inheritance taxes you are going to face. The first step in the process is to have the value of your business determined so that you can properly estimate the amount of taxes that will be owed.
Establishing a trust ultimately minimizes how much time your business assets spend in probate. Probate refers to the process and period in which your assets are distributed following your death. By creating a trust that allocates where your assets are to go, you can help recipients gain access to them faster and for less money.
Safeguarding your legacy
Essentially, what the trust does is protect property that is eventually meant to be allocated to certain people who are known as beneficiaries. Beneficiaries can be family members, business associates, nonprofit organizations, religious entities or virtually any other person or organization named in the trust. The trust protects you from creditors who come after you directly, but it can also do the same if someone attempts to come after one of your heirs.
How to go about creating a trust
Creating a trust can be done in several ways, but the first step is typically to determine which business assets will be included in it. Generally, it is wise to place major assets, such as any real estate property , into a trust so that they do not get stuck in probate somewhere down the line and delay your beneficiaries' access to them.
If you have existing and broad knowledge of estate planning, you may be able to go about establishing a trust on your own. Due to the complicated nature of doing so, however, you may find it helpful to speak with an attorney.