Estate Planning and Business Ownership

In the course or working with clients on their estate planning (will, trust, etc.), I frequently address ownership of a company. Most often this would be an LLC membership interest but could also be a corporation, partnership or other business entity. To effectively (and efficiently) address business ownership, there are a few viable options. However, every situation is different and actual, personalized counsel is tremendously important.

First, ownership of the LLC membership interest (or corporate stock shares) could be transferred into the name of the owner’s trust. This would, in most cases, allow for smooth transition to the owner’s family or other beneficiaries upon his or her death. Also, in the event of incapacity, trust ownership of the company would allow for quick and effective control by the named successor trustee. Probate would be avoided and a smooth transition would likely occur. This change of ownership would need to be clearly documented within the company’s records.

Second, the owner’s trust (or simply their intended beneficiaries if they don’t have a trust) could be named as the TOD (“transfer on death”) beneficiary/ies. This would leave present ownership of the LLC (or corporation) with the actual person (the owner) but would provide for an automatic transfer upon death. Probate would be avoided and a relatively smooth transition could occur. This type of TOD designation would need to be clearly designated in the company operating agreement and the related membership certificates.

Third, the owner could simply name, within their Will, who they want to receive the ownership units or stock shares of the company or corporation. This would be effective but would not avoid probate—so the time and cost to effectuate this ownership change would be less than ideal.

With any situation and any business and estate plan, the particulars and best methods vary from client to client and business to business. Importantly, other agreements within the company may have a significant impact on the owner’s ability to undertake such planning. The above overview is not legal advice and really does not replace legal advice. It is important to understand the goals, situation and business of each client and to facilitate an effective estate plan accordingly.