Safeguarding assets is important to everyone, and those who own businesses arguably need to pay particular attention to both company and personal assets. Limited Liability Companies (LLCs) and Trusts can each play a different role in protecting assets. Both are governed by state law. Read on to learn the basics of trusts and LLCs.
The Difference Between An LLC and a Trust
Simply put, an LLC helps business owners protect assets by effectively separating personal assets from business assets. On the otherhand, trusts are essentially established to arrange for the distribution of assets. As Kyle E Krull further details:
LCs are business entities often used for personal asset protection.LLCs can be multi-member or single-member. People create LLCs to keep business and personal property separate, reduce possible legal liabilities, own businesses or real estate investments, and simplify management structures while providing liability protection.Both trusts and LLCs are created on the state level according to state guidelines.Trusts are primarily entities for distribution, while LLCs are for actively running businesses.
Trusts: A Quick Overview
Because they can be customized based on circumstances and personal preferences, including a desire for privacy, trusts are a very useful estate planning tool. The legal underpinnings of all trusts are similar, but the variations on how they are arranged are many. Attorneys explain, in essence: “A trust holds assets and allows for these assets to be managed and controlled by a trustee.The trustee manages and passes assets to trust beneficiaries according to trust provisions.Trusts are commonly used to avoid probate on property transfers to loved ones. As a result, the process is typically quicker and more private.”
The most common type of trust is a revocable trust. As the name implies, a revocable, or revocable living trust: “Allows the trust’s creator to maintain control of assets by also serving as the trustee.This type of trust is attractive for those who want to keep asset ownership.” Importantly, revocable trusts even allow for the establishment of care plans for ourselves as we age, which is becoming increasingly important as we live longer lives. While researching the possibity of establishing a trust, these terms will come in handy:
- The person who creates the trust is known as the grantor.
- The person who manages the trust assets according to the trust provisions is the trustee.
- The successor trustee is the individual or entity selected to manage assets should the original trustee die or become incapacitated.
- The beneficiaries receive assets from the trust as provided by its terms.
When opting for any type of trust as part of an estate plan, be sure to put enough detail into the agreement to make the purpose and conditions for the distribution and use of trust funds clear. It’s also vital to choose a reliable trustee. As lawyers remind us:“With a proper trust, there will not be court involvement which means this person will have no court oversight in how they do their duties as trustee—choose wisely!” In doing so, it’s best to begin by carefully considering the qualities, skills and time commitments a trustee will need to successfully administer the terms of the trust. Learn more about the essential duties of trustees right here. Ultimately, whether a professional, friend, or relation is selected, the trustee has a fiduciary obligation to the beneficiaries—and must always exercise reasonable care and skill in managing the assets of the trust. Accordingly, the trust agreement may require a trustee bond, which is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere, anytime.
Good To Do: Succession Planning
While considering the future of both personal and business assets, it is a good idea for business owners to formally establish a succession plan. Don’t assume that family members will want to—or can—automatically take over. For example, in some states, court approval is required before a spouse can assume leadership of a business. Attorneys share this advise establishing a succession planning advice for business owners:
In many cases, a business owner’s fondest dream may be to transfer ownership to his or her children, who will continue to run the operation when the owner retires. A succession plan can provide a smooth transition of power and be used in the event of an unexpected death of an owner.Typically, a succession plan will outline the structure of the business going forward and prepare for the eventual sale of the business. Make sure that the plan is memorialized in writing. Identify training opportunities and special compensation arrangements for your successors. One section of the plan should include all the financial details reflecting assets, liabilities and current value.
Estate and Trust Law?
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