Apart from writing a will, you may also decide to put your business assets into a trust. This is a legal platform that facilitates the distribution of any assets you possess to your beneficiaries without probate. The business owner or grantor dictates the conditions of the trust. Such terms include naming the beneficiaries, and listing the kind of assets to be moved to the trust.
There are several forms of trusts. This article focuses on one type – the irrevocable trust.
Irrevocable trusts can never be edited, altered, or terminated unless certain conditions are met. They represent the opposite of revocable trusts, which may be altered or terminated at any time. Most business owners do not understand the benefits of setting up this kind of trust. Yet, having one is a guarantee that your business assets are fully protected.
Once you fund the trust with your assets, you no longer have any right over them anymore. Any asset added to the irrevocable trust is restricted from being sold off or given to mortgage until it gets transferred to the heirs.
Deciding to set up such a trust for your business can help keep your assets off probate. However, if you start experiencing financial difficulties related to the business, you will not be allowed to sell any of them even if they belong to the business. Nevertheless, an irrevocable trust comes with various tax benefits that you can take advantage of. However, you need to set it up the right way with the assistance of a “probate attorney near me 11516”.
How an Irrevocable Trust Helps you Avoid Probate
Once you set up the trust, you will be requested to identify a trustee and a beneficiary. A trustee is a person that will be in charge of managing the trust. The trustee can be one of the heirs, but cannot be the grantor.
Once you transfer your business assets to the trust, you give the trustee authority to manage them on your behalf. The assets are then retitled to bear the name of the trust. They no longer belong to the business owner. In case the assets have any taxes or financial expenses associated with them, it will be the work of the trustee to make these payments.
Upon the death of the grantor, the trustee distributes the assets to the beneficiaries accordingly. The distribution and management of the assets are done according to the instructions of the grantor.
For instance, a grantor may forbid the beneficiary from withdrawing funds from their bank account until they attain a certain age. The entire process is carried out outside probate in the presence of a “probate attorney near me 11516”, making things easier for the beneficiaries.
Besides shielding the business from probate, an irrevocable trust also protects its assets from any lawsuits filed by other potential beneficiaries. However, it cannot protect you from creditors.
Types of Trusts that are Irrevocable
An irrevocable trust can be of two types: A living trust or a testamentary trust. Living trusts are created when the business owner is alive. A testamentary trust is only created once the owner of the business dies. The business owner or grantor uses the will to direct how the assets should be shared upon death.
A testamentary trust gets revoked automatically because the grantor is not alive to make any alterations. More specific examples of an irrevocable trust created when the grantor dies include:
Altering Irrevocable Trusts
An irrevocable trust may only be altered with the assistance of a lawyer. To facilitate these changes, you need the consent of all the heirs listed in the trust. The process is easier in some states but difficult in others. Each state also has its own rules when it comes to beneficiaries who are still minors.
Business owners need to understand thatsetting up an irrevocable trust attracts some kind of taxation on the assets. Some of these include estate tax, and capital gain tax. Upon the grantor’s death, the executor will estimate the value of their business real estate to establish if there is any tax to be paid. When using an irrevocable trust, the estate tax’s total value can be lowered significantly, resulting in reduced tax charges.
Anytime a business realizes profit or experiences capital gain, there’s an amount that should be paid as tax. When a revocable trust is used to secure business assets, any capital gain must be reported, and the associated tax paid accordingly. With an irrevocable trust, the capital gain can be avoided.
Although irrevocable trusts are not easy to change, they offer a great alternative for businesses to avoid probate. They are more effective for business owners who may need to reduce the amount of tax to be paid from their real estate. An irrevocable trust may also be used in the case of an incapacitated dependent. For better results, utilize the expertise of a reliable “probate attorney near me 11516” that understands your needs.
