How Is My Business Managed If I Transfer It to a Trust?
If you transfer your business to a trust, its management will depend on the type of business and how it was previously run. Here’s how it generally works:
LLC
When a business interest is transferred to a trust, the trustee becomes the owner of that interest.
- Single-Member LLC: If you are both the member and trustee, you will continue running the day-to-day operations just as before. After your death, your successor trustee will manage the business unless your trust or operating agreement specifies otherwise or the trustee delegates those duties.
- Manager-Managed LLC: If management duties were already assigned to a manager, that arrangement typically continues even after your death.
Partnership
If you are an active partner and transfer your ownership interest to a trust while serving as trustee, you will still manage the business. Upon your death, your successor trustee will take over unless otherwise directed in your trust or partnership agreement.
If the partnership’s operations are handled by officers or employees, the trustee will generally allow them to continue managing according to existing agreements.
Corporation
When corporate stock is transferred to a trust, the trustee becomes the stockholder and votes according to the corporation’s governing documents. In most cases, this transfer does not change corporate management.
What Do the Beneficiaries Receive?
The trust’s terms determine what the beneficiaries are entitled to. The trust receives the business income or profits, and whether that income is distributed to beneficiaries—and how—depends on the trust agreement.
Special Note About S Corporations
If your business is taxed as an S corporation, special ownership rules apply. Only certain types of trusts qualify as S corporation shareholders. It’s essential to consult a qualified legal or tax professional before transferring ownership of an S corporation to a trust and again after the grantor’s death.
Although your trust can own your business after your death, there are many important considerations.
Let our team help ensure your business and loved ones are protected.
