If you own a successful business, the financial worth of your company may be significantly higher than any of your other personal assets. Retirement accounts and even real estate may pale in comparison to the true value of a successful business.
The company that you own and operate will inevitably play a major role in your estate plan. You can potentially transfer ownership with a will, but that may not be the best solution. Many business owners choose to use a trust when arranging for the succession of business ownership.
Why are trusts so commonly employed by those who own a business?
They can reduce estate tax risks
Although California does not impose an estate tax, the federal government does. If all of the assets in your estate are worth more than $12,920,000 and you die in 2023, then you may need to plan ahead to avoid estate taxes that could demand as much as 40% of your estate’s overall value.
They reduce the risk of beneficiary challenges
Whether you have two children who have always argued about who would be the boss after you died or you want to leave your business to someone outside of the family, there is always a possibility that your family members and the beneficiaries of your estate will take issue with the terms in your will.
People can potentially challenge wills in probate court, either undermining a testator’s intentions or reducing how much everyone inherits through probate litigation. A trust is typically much more difficult to challenge and therefore can minimize the risk of frivolous litigation after your death.
They give you lasting influence
Depending on how you structure your trust and the specific instructions you include in your documents, you could continue to influence business operations for decades to come. Especially for those who have specific legacy intentions, careful trust creation can be a way to preserve their business for the indefinite future.
Those with businesses have to think about how they pass ownership of the company and also how they transition to new leadership after their death or retirement. Addressing unique concerns in your estate plan will help ensure your business thrives long after you cease running the company.