Transferring Business Interests to a Trust
There are many reasons to transfer business interests to a trust, including maximizing tax benefits. One reason is that business owners often don’t want to pay estate taxes while they own their business. Creating a trust makes it possible to pass on business ownership to your family members and beneficiaries. However, it’s important to note that transferring a business to a trust is not the same as transferring ownership of a home.
For example, the business owner who owns a limited partnership may want to transfer his or her business interest to a trust instead of distributing his or her property to the partners. If the business owner is planning to sell his or her share in the business, the transfer can be done through the “Assignment of Business Interest” form. To transfer your interest, make sure that you speak with the partners and get their permission. Also, make sure to review the terms of the partnership agreement.
In addition to maximizing tax benefits, transferring business interests to a trust may also benefit other business owners. Often, a family business will be transferred to a trust for the benefit of the child that will continue to manage the business. It may be possible to establish separate trusts for each child, if desired. The transferor will have the ability to substitute other assets for the business interests of the other owners if he or she passes away.
If a business owner has a lot of stock in a corporation, transferring a portion of that to a trust is an excellent option. This strategy avoids paying estate taxes while passing on the business to a younger generation. In addition, a transfer to a trust may allow for considerable flexibility. If the owner survives the term of the trust, the gift tax savings will be substantial. But if the transfer of business interests is made after death, it may still be subject to gift tax.
A trust also can help the IRS avoid the gift tax liability associated with a business interest. For example, a trust can transfer ownership of a business to a child or grandchildren, while a corporation can give voting stock to the owner and non-voting stock to the children. It’s important to choose the right structure for your business. Whether it’s a limited liability company or a corporation, a trust is a great option.
A trust is a common estate planning tool. By creating a trust, you can transfer various assets to a third party. Transferring your business interests to a trust may be difficult for business owners who worry about losing control or power. But a revocable living trust can ensure a smooth transition of control and power upon your death. When the time comes to sell the business, the trustee can pay off the debts and transfer the assets to the beneficiaries of the trust.
When you transfer business interests to a trust, it’s important to ensure that all assets are properly registered in the name of the trustee. For example, if you own corporate stock in your own name and want to make sure the trust is tax-free, you need to transfer it to the trustee in the form of a registered certificate. For mutual funds and corporate stocks, you need to change the name on the certificates to the name of the trustee. If the shares are held in bookkeeping entry form, you may have to provide a copy of the Trust Agreement to the trustee.
