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Todd Villarrubia

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Using Trusts to Protect Your Business Assets

Posted On: December 15, 2023

By: Todd Villarrubia

Todd M. Villarrubia, an authority in wealth planning and preservation, brings over 30 years of in-depth, experience to the complex challenges of safeguarding familial and individual wealth. Based in New Orleans, Louisiana, his expertise is not only recognized in the local community but also reverberates within the legal industry.
Using trusts to protect assets
Business owners work hard to build their assets and establish their companies. Therefore, it’s essential to ensure that these assets are protected for the business’s continuity and the owner’s peace of mind. One way of safeguarding these assets is by utilizing a living trust. This article discusses how a living trust can protect your business assets. What Is a Living Trust? A living trust is a legal entity created to hold assets, often for the benefit of certain individuals. It’s called a “living” trust because it’s established while you’re alive, unlike a testamentary trust, which comes into effect upon your…

Business owners work hard to build their assets and establish their companies. Therefore, it's essential to ensure that these assets are protected for the business's continuity and the owner's peace of mind. One way of safeguarding these assets is by utilizing a living trust. This article discusses how a living trust can protect your business assets.

What Is a Living Trust?

A living trust is a legal entity created to hold assets, often for the benefit of certain individuals. It's called a "living" trust because it's established while you're alive, unlike a testamentary trust, which comes into effect upon your death.

Why Use a Trust to Protect Your Assets?

Incorporating a trust into your estate plan offers numerous benefits. One of the primary reasons business owners opt for trusts is the opportunity they present to protect their assets from potential creditors and lawsuits. Another advantage is the potential to avoid probate, speeding up the distribution of assets upon the owner's death.

How Does a Revocable Living Trust Work?

A revocable living trust can be altered or terminated by the grantor during their lifetime. Assets placed in a revocable trust remain in the grantor's control and are considered part of the owner's estate for tax purposes. While a revocable trust offers flexibility, it does not provide asset protection as does its counterpart, the irrevocable trust.

The Strength of an Irrevocable Trust for Asset Protection

Generally, an irrevocable trust cannot be changed once established without court order and the consent of all named beneficiaries. Assets transferred into an irrevocable trust are no longer considered part of the grantor's personal assets, providing greater protection against creditors and lawsuits.

Why Do Business Owners Need to Protect Assets from Creditors?

Business landscapes are fraught with risks. A lawsuit, for instance, could threaten your personal and business assets. Placing these assets in trust creates a barrier, making it difficult for creditors and litigants to access your valuable possessions.

Different Types of Trusts for Different Needs

There are many types of trusts designed for various purposes. Depending on your business needs and goals, you might consider charitable trusts, spendthrift trusts, and specifically Domestic Asset Protection Trusts (DAPT's) or as well as life insurance trusts. Evaluating your situation and choosing the type of trust that aligns with your objectives is essential.

Benefits of a Trust for Your Business Assets

Establishing a trust for your business assets not only safeguards them but can also offer tax benefits, especially with certain types of trusts like the charitable remainder trust. A trust also provides a structured way of distributing assets, ensuring that your wishes are adhered to.

Setting Up a Trust: What to Put in the Trust?

When setting up a trust, careful consideration must be given to which assets are transferred. Business assets, like property, intellectual property, or stocks, can be placed in a trust. It's also important to consider future earnings and how they will be managed within the trust structure.

The Role of Trustees and Trust Management

Once a trust is set up, a trustee or a set of trustees is named to manage the trust assets. Their role is to ensure that the trust's terms are followed and that the assets within the trust are handled responsibly for the benefit of the beneficiaries.

Making the Decision: Is a Trust Right for Your Business?

Every business and business owner is unique. While a trust offers multiple advantages, evaluating its relevance to your situation is essential. Consulting with an estate planning attorney can provide clarity and guide you toward the best decision.

Key Takeaways:

  • A living trust is a legal tool that can be used to protect your business assets.
  • Trusts can be revocable or irrevocable, each offering different levels of control and protection.
  • Business owners should consider using trusts to safeguard assets from potential threats, like lawsuits or creditors.
  • There are various types of trusts designed for different needs and objectives.
  • Trustees play a pivotal role in managing and overseeing trust assets.
  • Seek professional advice when considering establishing a trust for your business assets.
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