Do you know exactly what would happen to the value of your business if you were to have a fatal emergency tomorrow? If not, you are not alone. A 2017 survey found that only 36 percent of people ages 37-52 have a will or trust.
A will or trust can help make your end-of-life wishes clear for your well-being and assets. If you own a business, you may significantly benefit from opening a trust under the guidance of a financial advisor.
What about a will?
A will can be a powerful personal document. A valid will can detail funeral arrangements and name a legal guardian for your minor children, which can be especially useful if you have a non-traditional family structure.
However, wills are not all-encompassing and could have serious drawbacks for your assets. The main reason for this is that wills do not protect your family from probate. This legal process is necessary to transfer the titles of any property or vehicles after your death.
Without any interruptions, at a minimum probate may take a year from the filing date to settle your affairs in court. As a result, your assets could be charged $22,000 in legal fees and $5,000 in other fees. This process would be a matter of public record and might mean that your business may have to close its doors until the case is closed.
What about a trust?
A living trust can have several benefits for a business owner. By setting up a living trust, you have a good chance of avoiding probate altogether and settling matters privately.
The process may still take 4-6 months, but it would avoid the costs of going to court where a judge would be obligated to divide the assets you’ve included in the trust according to state law (not your indicated preference).
The following types of trusts to consider out of many available:
- Life insurance trust
- Grantor-retained annuity trust
- Charitable lead/remainder trust
- Asset protection trust
A trust allows you to appoint a trustee who takes on the legal obligation to pay off creditors, transfer titles and thus save on taxes in the event of your incapacitation, not your death. This could help keep your business doors open in the event you are unable to conduct affairs.
It is important that the person you appoint to this position is an individual or financial institution who will respect your beneficiaries and your assets. A trustee or executor has significant power over your estate and should only be a person on whom you can depend.
Estate planning can be a complicated process now but can save your family headache and heartache later.