Most business owners I meet have spent time thinking about their personal estate planning. They’ve got their home situation figured out, retirement accounts are in order, maybe they’ve even done a will. A living trust can protect your business interests and keep everything running smoothly when you die or become incapacitated.
Why Business Owners Need Living Trusts
When you die without proper planning, your business interest goes through probate. The court oversees the transfer of your ownership stake, and during that time, your business might be stuck in neutral. We’ve seen it take months and sometimes years. Banks freeze accounts. Vendors won’t extend credit without knowing who’s actually in charge. Your partners can’t make major decisions without getting court approval first.
A living trust sidesteps all of that. You transfer your business interest into the trust while you’re alive and healthy. When you die, your successor trustee takes over immediately. No court. No delays. Death isn’t even the biggest risk, honestly. Incapacity is worse in a lot of ways. If you become disabled and can’t run your business anymore, somebody needs legal authority to step in. Without a trust, your family has to go to court for a guardianship or conservatorship.
What Types Of Business Interests Can Go Into A Trust
Living trusts work for most business structures:
- LLC membership interests
- S corporation stock
- Corporate shares
- Partnership interests
- Sole proprietorships and their assets
Each one has different paperwork requirements. LLCs need an amended operating agreement. Corporations require new stock certificates. Partnerships might need consent from your other partners. At Kravets Law Group, we help business owners work through the specific requirements for different business structures to make sure everything lines up correctly.
Choosing The Right Trustee For Your Business
Your successor trustee isn’t just managing assets after you’re gone. They might need to actually run your business. Some people name a family member as a successor trustee. That can work great if your spouse or adult child understands the business. But if they’ve never been involved in operations? They’re going to struggle when they’re suddenly in charge of payroll, vendor relationships, and major business decisions. You’ve got other options. Name a business partner. Pick a key employee who knows how things work. Or use co-trustees who divide responsibilities based on what they’re good at.
The trust document needs to spell out what your trustee can actually do. Can they hire people? Fire people? Sell major assets or take on debt? When someone needs to step in and keep your business running, they need clear authority to act.
Funding Your Trust Properly
For an LLC, you execute an assignment of membership interest and update the operating agreement. Corporations need you to transfer stock certificates and update the stock ledger.
But there’s more than just the ownership interest. Business bank accounts need to be retitled in the trust’s name. Real estate that the business owns requires new deeds. Equipment and vehicles have to have their titles updated, too.
Additionally, funding isn’t something you do once and forget about. A Chicago living trust lawyer can help you complete the funding process the right way and catch gaps that could mess up your planning down the road.
Tax Considerations For Business Trusts
A revocable living trust doesn’t change your taxes while you’re alive. The IRS treats it as transparent. You still report business income on your personal return exactly like you did before.
S corporations have their own special rules. The trust has to qualify as a permitted S corporation shareholder, or you lose the S election. Most revocable living trusts qualify automatically, but the trust document needs specific language.
Succession Planning Through Your Trust
A living trust gives you real control over what happens to your business when you’re gone. You can distribute ownership immediately to your kids. You can spread it out over years. You can keep the business in trust indefinitely with instructions on management. Some owners use trusts to set up buy-sell arrangements. The trust holds your business interest, and when you die, your successor trustee has to sell it to your partners at a price you’ve already agreed on.
Business trusts need careful drafting to avoid operational headaches and tax problems. Whether you own an LLC, corporation, or partnership, a Chicago living trust lawyer can look at your specific business structure and design a trust that keeps things running during incapacity and makes succession smoother after death.