Why every business owner needs a trust

Every small business owner needs a trust so that the business can continue to run in your absence. It is that simple. Yet, many business owners have no idea that their business could come to a grinding halt if they don't have a plan for their business to run in their absence. So, why a trust?

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by Candice Lapin
updated May 11, 2023 ·  3min read

Smart business owners use trusts so their businesses can continue to run in their absence. It's that simple. Yet, many business owners have no estate plan in place to protect their business. A trust can make sure your business doesn't come to a grinding halt without you.

You could put your business at risk without a trust

One of the biggest issues that people don't understand is that often, money from a business will be used to satisfy the debts of a business owner's private affairs. An improperly planned estate can mean that there are not enough monies to satisfy the personal debts of the business owner. If this happens, the government will look to the business to satisfy the debts.

The business will either have to pay or assume the debt. Either situation can leave a business trapped. Your business can lose money or worse: The business can be shut down because necessary operating capital is taken to satisfy personal debts.

However, when you create a financial plan for how your business will weather your absence, you can plan for how your business can continue and grow without you.

A properly executed living trust enables your business to keep running without having to go through probate.

You can plan for your estate's financial needs

By planning now with a living trust, you can anticipate any uncertainties and account for them. Look at your personal estate and take the time to examine your personal obligations, including your house, your cars, and your personal debts. Then decide if your family can continue on the current personal monies and savings you have while also taking into account any estate taxes.

If there won't be enough personal assets to cover your obligations, you will want to look into putting more money aside for the satisfaction of those debts. Another option is to look into life insurance. You may want to begin to put money toward life insurance so that the proceeds are used to satisfy the personal debts of the estate.

You can often minimize taxes and avoid pitfalls

With a properly executed living trust, you can minimize taxes and even avoid many of the pitfalls that can ensue when there is no estate plan in place. The place to start in order to assess your tax implications is to get a proper valuation of your company. This assessment will give you a better sense of the tax burden on the estate. Investigate how you can minimize any tax burdens incurred by your own personal investments or the business by creating a trust. With fewer tax burdens, there are fewer debts to satisfy and a better outlook for the continued health of the business.

You can create a succession plan

You need an estate plan or living trust that provides for some type of succession plan. In other words, you need a system within your business so that each employee understands what he or she must do in your absence. A succession plan creates a clear chain of command for someone to succeed you so that your business can continue to run smoothly without you. Perhaps the trustee you appoint is also someone who can oversee the affairs of the business to ensure things are running smoothly.

You can also use your trust and other documents, such as a healthcare power of attorney to establish a trusted fiduciary to make financial decisions for your business in your absence.

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About the Author

Candice Lapin

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This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.