Every estate plan should cover how the client’s assets should be titled once his or her trust has been signed. While there is almost always a plan for the client’s house, life insurance, retirement plans, etc., the client’s business interests are often overlooked.
A person’s goals and the type of entity he owns will ultimately determine how an ownership trust is titled. In general, there are two planning techniques. The first is to place ownership of the business interest in the business owner’s trust. This allows the business owner to make decisions while acting as the trustee of the trust. It also means that the asset will not go through probate.
The second approach is to leave the interest in the name of the person, but to name a “beneficiary” under a transfer-on-death or TOD designation. The beneficiary could be a family member or simply the business owner’s trust. This approach also provides flexibility and will avoid probate.
Not all entities are good candidates for this type of planning. Subchapter S corporations, for instance, will lose their beneficial tax status in certain cases. This could be a very costly mistake.
Business owners looking to avoid probate should discuss these options and others with their estate planning and tax advisers. This could save thousands of dollars and avoid stress for their family and loved ones.