Business Interests Are Often Overlooked
When individuals create a revocable living trust, they frequently focus on transferring real estate and financial accounts into the trust.
However, business interests are often overlooked.
For business owners, properly addressing ownership interests may be an important part of trust funding and overall estate planning.
What Types of Business Interests May Be Owned by a Trust?
Depending on the circumstances, a trust may hold:
• membership interests in a limited liability company (LLC);
• shares of stock in a corporation;
• partnership interests;
• and other ownership interests in closely held businesses.
The appropriate approach depends on the type of business involved and the governing business documents.
Why Consider Transferring a Business Interest to a Trust?
Many individuals transfer business interests to a revocable living trust as part of a broader estate plan.
Potential benefits may include:
• avoiding probate;
• simplifying administration after death;
• maintaining continuity of ownership;
• and ensuring that ownership interests are managed according to the estate plan.
For additional information regarding trust funding, see Why Funding Your Trust Is Just as Important as Signing It.
Can Every Business Interest Be Transferred?
Not necessarily.
Before transferring a business interest, it is important to review the applicable governing documents.
Depending on the entity, relevant documents may include:
• operating agreements;
• shareholder agreements;
• partnership agreements;
• buy-sell agreements;
• and corporate bylaws.
These documents may contain restrictions on transfers or require additional approvals.
Does Transferring Ownership Change Control of the Business?
In many situations, transferring a business interest to a revocable living trust does not change day-to-day control of the business.
The individual creating the trust often continues serving in the same management role and retains the ability to manage the business during life.
The effect of the transfer depends on the trust structure and the governing business documents.
What Happens If a Business Interest Is Never Transferred?
Problems can arise when a trust is created but a business interest remains titled in an individual’s name.
After death, beneficiaries may encounter additional administrative complications.
In some situations, probate may be required to transfer ownership.
For an overview of the probate process, see How Probate Works in California.
Are Additional Documents Required?
Possibly.
Depending on the entity involved, transferring ownership may require:
• assignments of membership interests;
• stock assignments;
• updated ownership records;
• amended company documents;
• or other documentation.
The requirements vary depending on the business structure and governing agreements.
Reviewing Business Interests During Estate Planning
Business ownership often represents a significant portion of an individual’s assets.
As a result, business interests should generally be reviewed as part of the estate planning process.
A comprehensive review can help ensure that ownership interests are consistent with the overall estate plan and reduce the likelihood of future administration issues.
Coordinating Business Planning and Estate Planning
Estate planning and business planning often overlap.
Reviewing ownership structures, transfer restrictions, and succession objectives can help ensure that business interests pass according to the owner’s wishes and that the estate plan functions as intended.
Related Articles
Business owners and individuals creating trusts may also find these articles helpful:
• Why Funding Your Trust Is Just as Important as Signing It
• Do I Need a Trust or a Will in California?
• How Probate Works in California
• Estate Planning Attorney in San Jose
About the Author
Adam T. Evan is a California estate planning attorney serving individuals and families throughout Silicon Valley. His practice focuses on estate planning, probate, trust administration, and guardianships. He helps clients create practical estate plans designed to protect loved ones, avoid unnecessary probate proceedings, and ensure that assets transfer according to their wishes.
To schedule a consultation, contact the Law Office of Adam T. Evan at (408) 515-9005.
Law Office of Adam T. Evan 