For many business owners, the business represents years of hard work, sacrifice, and financial success. Yet it’s surprisingly common for even well-run companies to be left out of an otherwise comprehensive estate plan. Your home may already be titled in your revocable living trust along with your investment accounts, and other assets, but what about your ownership interest in your company? Whether you own a single-member LLC, have partners in a multi-member LLC, or own shares in a closely held corporation, your business interests deserve the same careful planning as the rest of your estate.
Your Business Doesn’t Automatically Become Part of Your Trust
One of the biggest misconceptions business owners have is that creating a trust automatically covers everything they own. It doesn’t.
Importantly, this does not transfer the business itself. Instead, it transfers your ownership interest into your revocable living trust. Your company continues operating as it always has. Its name, tax identification number, contracts, bank accounts, employees, and day-to-day operations remain unchanged. The trust simply becomes the owner of your interest, allowing that ownership to pass according to your estate plan rather than through probate.
Before Any Transfer, Review the Company’s Governing Documents
Not every ownership interest can be transferred without first reviewing the governing documents. Your ownership interest in your business generally must be transferred to your trust through an Assignment of Interest (for an LLC) or an Assignment of Shares or other appropriate transfer documentation (for corporate ownership). If you have a partnership agreement or other business agreement, be sure to confirm that this type of transfer is permitted
Operating agreements, shareholder agreements, partnership agreements, and buy-sell agreements often contain restrictions on transferring ownership. Some require notice to the other owners, approval from the members or shareholders, or compliance with specific procedures before an assignment is effective. Ignoring those provisions can create unnecessary complications or even violate the agreement.
This is why estate planning for business owners should be coordinated with the company’s organizational documents. Those documents may need to be updated to achieve the object of a comprehensive estate plan. The goal is to ensure your estate plan and your business documents work together—not against one another.
Reminder: Estate Planning Is Also Incapacity Planning
Many owners focus on what happens after death, but an equally important question is, who can step in if you’re alive but unable to manage the business? A properly funded trust, combined with durable powers of attorney and clear business governance documents, can provide continuity during periods of incapacity.
Your successor trustee may be able to manage your ownership interest while the individuals authorized under your operating agreement or corporate governance documents continue managing daily operations. Every business is different, which is why coordinating these documents with an estate planning attorney is so important. This is especially true if your business or businesses do not have any governing documents, an estate planning attorney can help you to fill the gaps and ensure probate avoidance and removes confusion and uncertainty when it comes to your estate.
Without a coordinated plan, spouses and other family members, business partners, and employees may find themselves uncertain about who has authority to act when important decisions cannot wait.
Succession Planning Is About Continuity, Not Just Retirement
Business succession planning is often viewed as something owners address when they’re ready to retire. In reality, succession planning is about protecting the business from unexpected events at every stage of ownership.
A thoughtful succession plan in the context of estate planning considers questions such as:
- Who will own the business if you are no longer able to do so?
- Who will manage operations?
- Will ownership pass to family members, business partners, or a trust?
- How do your business agreements coordinate with your estate plan?
- Are your beneficiaries prepared to receive a business interest?
Answering these questions before a crisis occurs can reduce uncertainty and help preserve the value you’ve spent years building.
Coordinating Multiple Businesses and Other Assets
Many successful families own more than one business, along with investment real estate, brokerage accounts, trusts, and other significant assets. Each entity may have its own ownership structure and governing documents. Coordinating these interests within your overall estate plan helps reduce the risk that one overlooked asset or conflicting agreement disrupts an otherwise well-designed plan. In addition, many business have contracts A comprehensive estate plan should view the business as part of the larger picture—not as a separate asset to be addressed later.
A Thoughtful and Comprehensive Plan includes your Business Too
Your estate plan should do more than distribute your personal assets. It should also address one of your most valuable assets: your business.
For many business owners, that means reviewing how ownership is titled, confirming whether assignments of interest are appropriate, coordinating with operating agreements or shareholder agreements, and ensuring the business can continue operating if the unexpected happens. Estate planning and business succession planning are not separate conversations. When coordinated thoughtfully, they help protect both your family and the business you’ve worked so hard to build.
If you own a business, now is an excellent time to review your estate plan with an estate planning attorney to make sure every piece of your plan is working together to protect your legacy.