Business Owners: Evenly Distribute Your Assets in Your Trust After You Pass

As a business owner, you need an estate plan that addresses the management and distribution of your business after you pass. Depending on the other assets you have, there are several ways you may choose to structure your estate to ensure that your children are treated equally during estate administration if you own a business.

Planning for Your Largest Asset

It’s essential to work with an estate planning lawyer who has substantial experience in assisting business owners. Even if all of your children want the same thing—either to be involved in the running of the business or to give up their share in exchange for cash—careful planning is necessary to avoid a lengthy court battle and probate.

Considering What the Children Want

During the estate planning process, it’s essential to find out what beneficiaries plan on doing with their share of the business. Assuming that you plan on an equal share for each child, each of them has a choice. They can choose to take ownership of the business or trade their share to the other named beneficiaries in exchange for an equitable distribution. Knowing what they want allows you to plan accordingly, whether that involves structuring a business agreement with them in mind or ensuring that you have enough liquid assets to fund an equitable distribution to the beneficiaries who do not want ownership in the business.

Setting Up a Trust

Establishing a trust allows you to plan for each beneficiary and avoids probate. The trust ensures that business ownership is equally distributed to the beneficiaries who want to claim their portion while still allowing those uninterested in business ownership to get what they deserve through an off-setting asset distribution. This involves structuring the trust in a manner similar to a buy-sell agreement to guarantee all beneficiaries are truly treated equitably.

What If You Don’t Have Enough Assets to Offset Distributions?

Ideally, a trust would include enough liquid assets to provide the beneficiaries who are not taking ownership of the business to receive an off-setting distribution. Also, other assets of the trust could be sold or distributed in their original form (i.e. real estate) to inject liquidity into the trust and allow an off-setting distribution. However, there may not be enough liquid assets, and beneficiaries may not want to inherit assets in their original form or sell other assets due to tax concerns and various other reasons. Luckily, there are solutions. You can buy a life insurance policy that brings liquid assets into the trust and provides enough to pay out each individual not inheriting the business while also avoiding the sale of other trust assets. Your lawyer may also discuss a mandatory promissory note option; however, this must be handled carefully to avoid leaving the business without the funds needed to run smoothly.

Planning for Possible Conflict

In estate planning, it’s important to hope for the best and prepare for the worst. While you may assume that beneficiaries won’t dispute your estate plan or the administration of your trust, conflict is always a possibility. Mitigate these possible expenses and conflicts by choosing an appropriate business valuation method and naming it in your trust, requiring mandatory arbitration for valuation disputes, and appointing a mandatory appraiser.

The work you have put into your business doesn’t stop with you. Your loved ones can reap the rewards of your hard work and protect your legacy. Take the first step now and reach out to the Law Offices of Tyler Q. Dahl at 916-545-2790.

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Dahl Law Group

At Dahl Law Group, we’re not just a law firm. We’re your trusted advisor for your business and family from beginning to end. As your family and business grow, we will be there by your side. Our passion is providing you with peace of mind and protection through personalized estate and business planning.