When Oakland County residents think of establishing a trust, they may think of one aspect in particular: trusts are complicated. While that can be true, the real benefits of trusts are worth the effort when it comes to tax planning or protecting an inheritance. This is true not only for individuals thinking of individual estate planning; trusts can also be an extremely useful for small business owners who intend to eventually pass their business and assets on to beneficiaries.
The parameters of a trust vary based on the desired outcome. One of the benefits of considering a trust for business succession is that a trust can allow for a controlled or gradual transition. This can benefit both the owner and the intended beneficiary.
Trusts also allow the owner time to groom a successor while maintaining control over business operations. Often small businesses are family-owned, and the owner wants to pass control and management of the company to one child while also allowing other children to benefit from the company’s profitability. A properly designed trust is an ideal way to implement such an arrangement and take advantage of the associated tax benefits, which include limiting the tax on beneficiaries and dealing with the progressive nature of taxes by redistributing estate wealth.
Designing and implementing a trust for business succession is a process that is best approached methodically and deliberately over time. Even if the owner is not even close to handing over control of his or her company, it is best to begin a succession plan as soon as possible. An evolving and open transition over time ensures that all the interested parties know the owner’s intentions for the future direction of the company.
Source: North Bay Business Journal, “Trusts enhance options in business succession planning,” Eric Gneckow, April 16, 2012