Should Your Trust Own Your Business?

Should Your Trust Own Your Business? The question often arises as to whether the family company, a corporation, LLC, or limited partnership, should be owned by the parent’s living trust. Owned by the trust probably isn’t a good way of phrasing the statement. The company is owned by whoever owns the stock. (In an LLC there are “membership interests” and in a partnership, there are “partnership interests” – both general partners and limited partners.) The parent’s interests should be owned by their living trust.

The stock or membership interests are an asset that requires a signature to transfer it. Therefore, it will be subject to probate, if it is held in the name of a deceased person. To avoid probate, the ownership interests should be held in the name of a living trust. Thus, when the individual dies the interest or stock is not held in his or her name, but rather in the trust’s name. At the individual’s death, the interest is held by the trust and the trust document appoints another individual to act as the successor trustee. The successor trustee has full power to sell the stock, vote the shares or do whatever they have to in order to make the company continue.

By simply making sure the living trust (of course you need a living trust) “owns” the family company, the family can avoid a lot of time, expense and frustration when the manager/CEO of the company dies.

Just get the stock or membership ledger and cancel the certificate already issued, then reissue another certificate in the name of the living trust. This is what happens if you have a big company change the name on a stock certificate. Once the new interest certificate is issued, the interest is then owned by the living trust, and you have effectively maneuvered out and around all the probate problems. Smooth Sailing!

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