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Business-Focused Entrepreneurial Trusts in Estate Planning
Do you have wealth that will be left to your children without constructive guidance when you pass? Sharing wealth too freely without implementing conditions or a comprehensive wealth plan can be a disadvantage to them. It many cases, it can lessen your child’s desire and motivation to work hard and create their own successes in life.
Many times, people who have business assets to leave to their beneficiaries often rely on a corporate trustee or the business’s office to handle most of the financial transactions. This can hinder children by depriving them of the opportunity to learn about investing, how bills are paid, how to file tax returns, and how to make overall financial decisions on their own.
The Solution: An Entrepreneurial Trust
An alternative to traditional estate planning is to establish a different type of trust called an ‘entrepreneur's trust’. Sometimes referred to as an incentive trust, an entrepreneurial trust can inspire and motivate the next generation to learn how to be stewards of the family’s business holdings and wealth. It provides an opportunity for wealthy children to try their hands at investing, practicing entrepreneurial skills, and learning from their successes and failures. A professional trustee is often put in place to give them guidance along the way.
If the business owner is not the sole beneficiary, a business owner can be the sole trustee of the trust that holds the business and be a trust beneficiary with others. Commonly, the beneficiaries of a business trust are investors or shareholders. If it is a family business, the beneficiaries might be the owner’s heirs.
What are the Benefits of an Entrepreneurial Trust?
To the Business Owners:
It offers tools and resources to the beneficiaries to pursue their own passions and build their own successes in business.
It fosters accountability and responsibility for wealthy children by involving them in the management of their future inheritance—thus building leadership and decision-making skills that flows into other areas of their lives.
It provides a solution that can be tailored to align with your own values, goals, and objectives regarding how your wealth is handled—or it can be left open-ended so that your children can pursue their own financial paths.
An entrepreneurial trust can also include certain provisions that allow for changes to be made over time.
To the Beneficiaries:
Assets are protected from creditors.
Estate taxes are either reduced or eliminated.
It separates business assets from personal assets, much like an LLC.
It ensures uninterrupted business continuity, should the owner become incapacitated or dies.
Probate may be avoided when the business owner dies.
Public filings are not required for an entrepreneurial trust, which offers privacy.
How to Build an Entrepreneur's Trust
Building your entrepreneur's trust should be a team effort between you, your financial advisor, and an estate planning attorney who has experience in this area. Your attorney can help you through the process of building the trust with the right structure, and counsel you on setting it up and funding it. An estate planning attorney can also ensure that your entrepreneurial trust is aligned with your overall estate planning goals and objectives. It is best to have your children get involved as well so that their wishes can be incorporated in your plan.
Conclusion
If you’d like your beneficiaries to adopt an entrepreneurial spirt while still ensuring that your values and goals for your wealth are being carried out as you wish, you may want to consider building an Entrepreneurial Trust. Rather than just protecting your assets, it’s an excellent way to encourage involvement, responsibility, and accountability with your children when they become adults. Ronald J. Axelrod, an Estate Planning attorney in Rochester, NY, is experienced in working with clients who need guidance with planning their estates when they wish to pass on their values to the next generation, not just their money. Call (585) 203-1020 to set up an appointment.
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