Corporations
Funding your trust with your shares of a small closely-held or family corporation is easily enough accomplished, but there are several considerations for you and your counsel. You should first have your counsel review the Articles, Code of Regulations, Bylaws, Minutes, Shareholder Agreements (e.g., Buy-Sell or Cross Purchase Agreements), and/or share certificates for any special circumstances or limitations upon transfer. If there are, corporate documents may need to be amended, and consent obtained by other shareholders. We generally recommend that this be done by an experienced estate planning and/or corporate attorney.
If your corporation is a Sub-chapter “S” corporation, the trust should contain a Qualified Subchapter “S” Trust (QSST) so that the stock might be administered without losing the Sub-chapter “S” election.
Professional corporations present unique challenges. Many professionals (such as doctors, lawyers, real estate brokers, etc.) own their businesses in the form of a corporation. Funding professional corporate stock generally involves changing the ownership of the stock to the name of the trust. Each state has its own laws that regulate both the licensing and conduct of professionals, however, and many states restrict ownership of professional corporations to individuals that hold the applicable professional license.
As a result, funding a professional corporation should be done only after your estate planning attorney has carefully reviewed your state’s statutes pertaining to ownership of professional corporation stock. Due to the legal complexities of funding corporations, we strongly recommend that you consult with your estate planning attorney prior to funding a corporation.
Some state statutes expressly allow professional corporate stock to be transferred into a living trust so long as the trustee is a licensed professional. This exception may still be problematic if someone other than a professional is serving as a co-trustee (e.g. such as the spouse of the professional). Fortunately, many state lawmakers have foreseen this inherent problem and have provided for a solution through careful legal document drafting. Your attorney will be able to outline these solutions for you. But, the complexities and considerations in funding corporations with non-professional co- trustees, warrant that you consult your estate planning attorney to determine the best course of action.
Limited Liability Companies (LLC’s)
Assigning the units of ownership in a small or family-owned LLC is simple enough, but there are several considerations for you and your counsel. Counsel should review the Articles of Organization, Operating Agreement, and any agreements among the unit owners or members for any special circumstances or limitations upon transfer. If there are, company documents may need to be amended, and consent obtained by other members. We generally recommend that this be done by an experienced estate planning and/or corporate attorney.
Nonetheless, a simple request to a managing member or partner that a member’s interest be transferred to to a trust is found here.
Partnerships
The same considerations exist here, as with corporations and LLC’s. Depending upon the Partnership Agreement (or lack thereof) a simple assignment might suffice. But the documents should be reviewed by counsel. Many attorneys recommend that the partnership agreement be acknowledged, accepted, and signed by the trustee.
Sole Proprietorships
On one hand, funding the assets of a business which is a sole proprietorship, is simply accomplished by an assignment. The registration or title of bank accounts is sometimes problematic, and may require assistance from counsel. I typically ask that the account be registered or titled in the name of the trust, “dba ‘the business name’.” Banks may or may not permit the account in that form, however, in which event consult counsel.
Monty L. Donohew
Monty L. Donohew, LPA
5590 Lauby Road, Suite 7
North Canton, OH 44720
Offices also located in Columbus,
Cleveland and in St. Louis, Missouri
(330) 896-0300
Toll Free: 877-816-8670
Fax: (866) 904-9638
E-Mail: md@donohew.com
Internet: http://www.donohew.com
