Why You MUST Use a Living Trust When Planning with Business Owners
Previously, we discussed how to grow your business by doing business owner reviews. In this issue, we want to strongly recommend that if you are working with a business owner, using a Revocable Living Trust (RLT) as the main planning tool is critical for several reasons.
Control by the Right People, Not the Judge!
Our first reason has to do with running the business. If you are advising a small business owner on estate planning, you need to address the obvious issues of disability income in case of incapacity. In addition, you will likely address issues such as life insurance, for possible needs such as income replacement, succession planning, and possibly estate tax planning. But there’s also the practical issue of running the business day-today.
Who Is in Control of the Business?
Who is in control and makes the key decisions in the business upon the death of the owner? If there are multiple owners, the strategic use of a shareholder agreement or an operating agreement sets up the process of what to do and who has what rights in case of a buyout.
This is a much easier issue, but what if we have a sole owner? What should be done with the business? Should it be shut down? Can the business be sold as an ongoing concern? Who should make these crucial decisions?
Key Business Decisions Made by a Judge?!
If you use a Last Will and Testament, then a judge appoints someone to run the business, and then a judge approves their plan of action. But this takes time and it requires court hearings, the testimony of experts, as well as money to pay lawyers.
In the meantime, critical decisions need to be made in the business quickly, because business as an asset of the estate diminishes in value rapidly.
What about Incapacity of the Owner?
In some cases, death is cleaner and easier for the business. What if the business owner is incapacitated? Who runs the show? What is their mandate for running the business? Who makes the tough business decisions?
Logically, it should be the guardian with the approval of the guardianship court. But just like the probate judge, the guardian and the judge are not in any position to make a good business decision. They may be intelligent and wise people, but they don’t know the owner’s business and will probably not be in the best position to make decisions about that business.
Using the Living Trust for Business Owner
The RLT is the best solution for planning for the business owner. If properly used, the Trust can put the right people in control of the business, not a judge. Nothing can destroy the value of the business than burying it in the quagmire of probate or guardianship court.
To get more information regarding this or any related topic, please visit our website www.TEPLG.com or call us at 630-871-8778.