How to Transfer Business Interests into a Trust
After you create a trust, your next step is to transfer your assets into your trust. But what if you own a business interest? Should you transfer that into your trust too? Transferring business interests into a trust can be complicated, but here’s an overview of the basics.
Why Transfer Business Interests into a Trust?
Some people who create a trust choose to transfer their business interests into it for the following reasons:
- Avoiding Probate: Just like any other asset, business interests that exceed the California probate threshold can trigger a lengthy, expensive, and public probate proceeding. Assets that are placed in a trust do not need to be probated.
- Incapacity Planning: A trust ensures that your business can continue operating not only upon your death, but also if you become incapacitated due to an accident or illness. If your business interests are placed in a trust and you become incapacitated, your successor trustee can immediately take over your duties to keep your business operating during your absence.
What to Know Before Transferring Assets
Before transferring your business interests into a trust, you should always consult an experienced estate planning attorney. Depending on what kind of business interest you own, they can help ensure that this transfer won’t violate a corporation’s bylaws, an LLC operating agreement, or a shareholders’ buy-sell agreement.
Your attorney can also draft a trust that specifically grants the trustee powers to manage your business. Each type of business interest has its own requirements so working with an attorney is key to avoiding any potential missteps.
How to Transfer a Business Interest into a Trust
The process for transferring your business interest into a trust varies depending on what kind of business interest you own and how it was set up. Here are a few of the most common types.
In a sole proprietorship, you are the only business owner. Because of this, you do not need the agreement or permission of anyone else to transfer your business interest into your trust. You would simply assign your business assets and interests into the trust. This is accomplished with an Assignment of Interest agreement. Just like it sounds, this agreement assigns your interests into your trust so that it becomes a trust asset.
If you own stock or shares in a corporation, you should contact the corporation and fill out any necessary documents to transfer your stock or shares to a trust. Often this document is called an “Assignment of Stock”. Submit this document to the corporation and have them file it.
Next, the corporation will re-issue you new stock documents listing the trust as the owner. Check with your corporation on any additional terms or conditions when making trust transfers.
LLC or General or Limited Partnership
When it comes to a Limited Liability Company (LLC) or a general or limited partnership, you may own a complete or only a partial interest in the business. You’ll want to first review the terms and conditions of your LLC or partnership agreement to review the requirements for transferring your portion into a trust. If there are other partners, they may need to vote on and approve the change.
Next, seek counsel from your attorney on the best way to transfer your portion of the business into your trust. This will vary, depending on how your business was set up. For an LLC, you may need to execute an “Assignment of Interest”, notify your partners, and sign a document agreeing to the change. For a partnership, you may need to change your partnership ownership certificate to you as the owner of the share.
When transferring business interests into a trust, an experienced estate planning attorney can provide legal advice on how to best achieve your goals. If you have any questions about transferring business interests into a trust, feel free to contact our law firm.
Law Offices of Daniel A. Hunt
The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.