Handler & Levine, LLC



SEQ CHAPTER \h \r 1Transferring Business Interests into YourRevocable Living TrustThis article will go over, in technical terms, how you transfer business interests into your revocable living trust.General Partnership Interests: The most common “basic” business interest is the casual ownership of a business, including real estate, with someone else for profit. If there is a formal general partnership agreement, then the transfer is handled as set out for a limited partnership transfer below. That means that your assignment will probably need to be notarized, and it may be that the other partners will have to consent to the assignment in writing. There can be issues if the it. If you are using a corporate trustee as the trustee (or successor trustee) of your trust, a special trustee may have to be appointed instead, as the Corporate entity may not allow itself to serve as a general partner. Sole Proprietorships: The next most common form of business interest, sole proprietors, basically self-employed individuals operating their business alone, has singular issues, as the individual (the grantor) is the business. If the revocable trust will “own” and operate the sole proprietorship, then trade names, d.b.a. (doing business as) designations, business licenses and other designations of ownership would be changed to show that the revocable trust is now the owner. Consider less cumbersome ideas, such as an assignment of business assets to your revocable trust with your non-business tangible property, and a transfer-on-death (TOD) designation on the business bank account to transfer cash to the revocable trust at your death.Limited Partnerships/Limited Liability Companies: The next most common form of business entity is the limited liability company (“LLC”) and its cousin, the limited partnership (“LP”). If you are a member of an LLC, or a limited partner in an LP, that membership interest can be assigned to your trust. It is possible that the operating agreement of the LLC already allows for this assignment, but if it does not, it can be easily amended to add it.More specifically, if the managing member of the LLC, or the general partner of the LP, does not already have a form to assign your interest to your revocable trust, one can easily be prepared by our firm. The assignment of membership interest will specify your particular interest to be transferred, the details of the new titling (as “Trustee” or as the revocable trust itself), and that the trustee accepts the same terms in regard to liabilities and benefits as you did.Closely Held Corporations: In recent years the least common form of business ownership for small businesses. Before transferring shares, check that the transfer does not trigger a buy-sell agreement with other shareholders, or that the agreement can be modified. The corporate minute book, paper stock shares, and the books and records of the corporation will need to be physically changed to reflect the transfer.Subchapter S Corporations: A very common characteristic of a closely held corporation is that it has made an “S” election with IRS. That means that the earnings and any losses of the corporation are passed through to the you, the grantor, personally. Earnings are taxed only once at the personal level and any losses can be deducted from ordinary income.There is absolutely no issue with transferring S corporation stock to your revocable trust while you are alive. However, after your death, the stock can stay in your revocable trust for a period that usually cannot exceed two years. After that time the corporation loses its "S" election, and become a "C" corporation. That two year period will give your trustees enough time to distribute the “S” corporation stock to the beneficiaries so the "S" election can be kept. If you want a continuing trust for the stock you can allow it to be distributed to a trust that qualifies to own stock with an “S” election. ................
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