Are you a small business entrepreneur? Have you thought about what would happen to your company when you die?
No one likes to think about dying, but if you own a company, big or small, you need to plan for every possibility. Including, what happens to your company if you die.
One way you can protect your business assets is to establish a trust. There are several different types of trusts, that may or may not be right for you. Continue reading to determine which is best for your business.
Why Establish a Trust?
A trust is a legal entity. It separates the legal owner from the equitable owner. When you place your business into a trust, your assets are no longer part of your estate and will not be affected by probate if you should die.
A trust gives you a succession plan for your business. It is a chain of command that allows your business to continue to run without you there.
Trusts Offer Tax Protection and Credit Protection
You can minimize estate and capital gains taxes with a properly executed living trust. Even if you do not currently meet the threshold of taxation, tax laws could change. And, hopefully, your business will grow. So, just while you might not meet the threshold today, you might in the future.
In the same way, you should consider setting up a trust to provide protection from creditors. Because, again, while you may not have debt or creditors now to worry about, that might change in the future. It is always a better idea to set up protection for your assets before you need it.
Like every other business, a company protected by a trust still needs to adhere to all current tax laws. Speak to a tax accountant and make sure to file your trust tax return every year.
Types of Trusts
There are several different types of trusts, but most business owners will elect for a revocable living trust. A living trust is a trust put in place while you are still alive. A revocable trust is one that allows you to change terms and transfer business assets whenever necessary.
In a living trust, you are designated as the trustee and retain control of your business while you are alive. A second and third trustee are also designated. Should something happen to you, the second trustee gains control of the business. And the third trustee gains control if something happens to the second.
Other types of trusts include Life Insurance Trusts, which are used when there are not many liquid assets and help offset (or avoid) estate taxes. These trusts must be set up at least three years before your death.
Grantor Retained Annuity Trusts are used for S corporations. These trusts are not subject to estate taxes and provide income by way of an annuity to the beneficiary.
If you want to leave some of your assets to charity, you can do that with a charitable trust. These types of trusts are usually irrevocable and cannot be changed once they are established.
Find the Trust That Is Best for You
When you establish a trust for your business, you can help protect the assets of your company and provide a chain of succession in the event you can no longer run your business. Often, it means your company can avoid liquidating in order to satisfy estate tax obligations. While it may not be something you want to think about, for the sake of your business interests it’s imperative that you do.
Explore our blog to learn more about options for your small business and personal finances.