Admittedly, this time of year (i.e., March-April), no one wants to think about anything other than Tax Season. The 1099s are in, the expenses are accounted for, and the checks to IRS/FTB hare sent out. So now what? What lessons can we learn and how can we be better protected for next year?
One such important step is to set up a living Trust and transfer your home and assets in it. That includes assigning your business interests (in an LLC or Corp) to the Trust. Although the trust does not offer asset protection to its creators, it offers such creditor shield to the creators’ beneficiaries – children or other relatives. It does so by way of its spendthrift provisions that prohibit a beneficiary from the ability to apply their inheritance to satisfy judgments, divorce liability, bankruptcy, etc. In this way, ultimately, more of what you worked hard for, actually goes to your beneficiaries, and not to their departing spouse (in divorce), to the Bankruptcy Trustee, or to satisfy a judgment against them.
If you own and operate an LLC or a Corp, or if you are a partner in a Partnership, it is very important – and sadly often overlooked – to assign your business interest to your Trust. This is especially important for a single-member LLC, a one person S-Corp, and especially when the Corp has set up a Retirement Plan. Not assigning your business interest to your Trust will create a web of legal complications in terms of the administration of your corporate Retirement Plan, which often may lead to having to Probate such business assets. Conversely, when the business entity is assigned to the Trust, and the owner dies, the Successor Trustee has the legal ability to transact on behalf of the business entity, including to manage and distribute the Corporate Retirement Plan to its named Beneficiaries.
So, after tax season, and before vacation season, it makes perfect sense to do the most reasonable thing: shore up your assets by setting up a comprehensive estate plan, including a living Trust, and an Assignment of your business interest(s) to the Trust.