Are your business interests titled in your trust?

While the threshold to avoid estate tax is rather high ($5.45 million at the federal level and $4 million at the state of Illinois level), the threshold to avoid probate in Illinois is only $100,000 (one hundred thousand dollars) and even less in many other states.

Estate planning is an integral process for all business owners. Clients are encouraged to have an estate plan in place which incorporates a revocable living trust to:

• Minimize or avoid estate tax implications.
• Minimize income tax implications for the next generation.
• Avoid probate.
• Allow for seamless administration of assets in the event of disability.
• Avoid guardianship estates for minor children.
• Provide asset protection for beneficiaries.
• Allow for private administration.
• Reduce administrative and legal fees.

In order to glean the benefits of a revocable living trust it is critical that virtually all assets are properly transferred to your trust. Unfortunately, business interests are sometimes overlooked during the funding process or, at the time, a business owner is forming a new entity.

If business interests are owned in your individual name and are valued at death in excess of the threshold to avoid probate, a probate estate would have to be opened. Probate is expensive, time consuming (as assets are typically frozen for the creditors claims’ period, which is six months in Illinois), and everything becomes a matter of public record.

Typically, the assignment of membership interests in a limited liability company, limited or general partnership interests in a partnership, or shares in a corporation are very easy to accomplish. From time to time the organizational documents for a business entity may limit transfers of ownership. However, even in those instances, organizational documents will often explicitly authorize a transfer to a revocable living trust. Or, when the owners of the business are educated on the benefits of revocable living trusts, they are amenable to allowing for such transfers. Be diligent in your business and personal planning to provide you and your family peace of mind.

Feel free to contact us for further ideas for avoiding probate, minimizing tax and protecting your assets. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client Alert authored by: Lindsey Paige Markus, Principal