When you’re doing your Estate Planning, don’t forget about your business interests. Businesses are one of the most common things that we see that are left out of the Trust, even though an Estate Plan has been done. Whether you have an LLC, a corporation or a partnership, your ownership interest in that business is an asset that will have to go through the probate process when you die, if the interest is not held by a trust. And the business interest can end up being one of the most complicated aspects of the probate that can run up the costs of the probate and add to the time to administer the estate. So missing this key component of your planning can be costly to your family in terms of time and expense.
If you have an LLC, make sure that your membership interest is assigned to and held by your trust. If it is a corporation, you need to transfer the stock to the trust and have a new stock certificate issued in the name of the trust. You will also need to have the change of ownership recorded on the corporation’s stock ledger. If it is a partnership, your partnership interest will need to be assigned to the trust. Note also that, if the company has restrictions on the right of transfer of the ownership interest in the company, you may also have to get a corporate, LLC or partnership resolution to allow the transfer.
On the asset protection planning side, you should seriously consider having a separate Nevada Asset Protection Trust to hold only your interest in the business. Separating your business ownership interest into a separate Nevada Asset Protection Trust will serve to avoid exposing your entire personal asset portfolio (e.g., your home, personal savings, stock investment portfolios, etc.) to a business liability (in the event that the business is drug into a lawsuit and a successful corporate veil piercing occurs). Doing this will also serve to shield and protect your income flow from the business, even if you end up being sued personally in an unrelated matter (e.g., a car accident) and a personal judgment results. With regards to protecting your personal asset portfolio, it is always best to have your personal assets held in a separate asset protection trust that is not a part of the business. (Note that there is no legal limit on the number of trusts that a person can have. Sometimes, for asset protection and/or estate planning purposes, a person will have multiple trusts that serve specific purposes in their overall estate and asset protection plan).
As for a business that has partners (I’m using the term partner here loosely to refer to what may be an actual partnership or an LLC or corporate ownership interest), the partners should also take care in advance to deal with succession of the business interest if a partner/member/shareholder dies. It is wise for the partners to have a Buy-Sell Agreement that allows the business or the other partners to purchase the deceased partner’s interest on predefined terms when a partner passes away. The Buy-Sell Agreement can set the valuation or agreed method of valuation of the business and how funding of the deceased partner’s interest will be provided (funding is often provided for with a life insurance policy). If the partner has transferred the interest into a trust, the trust will be the partner/shareholder/member that is being bought out. If a partner has not put his/her ownership interest into a trust prior to death, the buyout will be a payment to the deceased’s partner’s probate estate (a buy-sell agreement itself, will not avoid probate of the deceased partner’s interest).
Planning in advance to adequately address all of the business ownership interests can save you and your family a significant amount of time, money and nuisance. Don’t procrastinate on this vital issue.