Page 26 - Wire Rope News & Sling Technology - February 2020
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Family Business Trusts:

                Protecting Valuable Assets from Outside Threats

                                                   by Phillip M. Perry
         Family businesses can use trusts to protect valuable assets from a variety of threats.
         Carefully designed trusts can avoid costly probate, buffer the enterprise from lawsuits
         and creditor claims, and resolve disputes about the distribution of assets to the next
         generation. Starting the planning process early will help protect the business from
         sudden loss due to an unexpected lawsuit or death.

             ames runs a rapidly growing fam-
             ily business.  Things  are going
         Jgreat now, but he worries about
         the future.  If he  should  suddenly be-
         come incapacitated, who  will  run  the
         enterprise  for  the  benefit  of  his  wife
         and children,  none  of  whom  has  yet
         mastered the skills required to manage
         a commercial operation?
           After consulting  with  his  attorney,
         James comes up with  a solution:  a
         revocable trust which designates  a
         skilled trustee to take the reins of the
         business  in  the event James can  no                                                                  Photograph © MEDIAIMAG | Shutterstock
         longer  perform his  duties.  By helping
         to assure the long-term survival of the
         enterprise,  the trust gives the family
         considerable peace of mind.
           “A revocable trust is created while
         a  business  owner  is  still  alive,”  ex-  The good news is that trusts can be   at the  courthouse  to see  how  much
         plains Michael P. Sampson, partner   created by all sizes of organizations.   money or debt  your family has,” says
         in the Minneapolis law firm of Maslon   “Even smaller family businesses  can   Sampson. Public records are also some-
         LLP ( “It allows the   utilize trusts,” says John J. Scroggin,   times accessed by predators who try to
         owner to retain control of business as-  partner in Atlanta-based Scroggin &   victimize people who have inherited
         sets while arranging for a trustee to   Company,  a  law  firm  active  in  busi-  money.  “Having your  property passed
         step in and manage things in case the   ness and estate planning (www.scrog-  along under the terms of a trust avoids
         owner becomes incapacitated.” The “The issue is driven not   the creation of public records that re-
         revocable  nature of  the  trust is im-  by size, in terms of revenues or assets,   sult from court involvement.”
         portant for anyone who, like James,   but  by  a desire  for  long  term  protec-
         wants to retain ownership and control   tion of a business.”          PROTECT ASSETS
         of the business assets. And—as we    How can you use trusts to help your   Can a trust which allocates family
         will see next—a revocable trust will   own family business? For starters, con-  business assets to the next generation
         also help the family avoid costly pro-  sider  using  one  to  efficiently  allocate   be revocable? Yes, but that has inherent
         bate if James should die.          assets to the younger generation. Al-  risks. Consider Sarah, who wants to do
                                            though a will can do the same thing, a   just that. Sarah’s attorney tells her that
         AVOID PROBATE                      trust is more difficult to challenge and   if she makes the trust revocable, all of
           Family businesses everywhere es-  has the advantage of avoiding probate.   the  business  assets  will  remain  under
         tablish trusts to solve a host of critical   “Probate can be expensive and time   the ownership of the family. As a result,
         problems. Upon the death of the busi-  consuming,” says Sampson. “This is   they will be at the risk of being attached
         ness owner,  for example, a trust can   especially true in states such as Cali-  by creditors or lost in lawsuits. The as-
         protect against costly  probate, secure   fornia, Florida, Illinois, and New York,   sets might also be seized to satisfy any
         sensitive  business  information  from   where probate is very complicated, or   nursing home bills incurred by the per-
         prying eyes, guard family assets from   for  businesses  operating  in  more  than   son who establishes the trust.
         crippling lawsuits and creditor claims,   one state.” In the latter case, survivors   For  these  reasons,  Sarah  decides  to
         and even obviate turf wars by surviv-  may have to deal with the complications   set up an irrevocable trust. Because the
         ing children.  (The traditional use  of   required to satisfy the requirements of   trust will own the business assets, they
         trusts to avoid estate taxes has become   more than one set of probate laws.  will not be subject to above risks of loss,
         less important, since federal tax law re-  In addition to saving  you  money,   either before or after Beth dies.
         cently increased the estate tax exemp-  avoiding probate can also protect your   The terms of an irrevocable trust can
         tion to $11.2  million for individuals   business secrets. “You might not want   address the demands of complex family
         and $22.4 million for married couples.)  your competitors looking up your will         continued on page 28
         26     Wire Rope News & Sling Technology   February 2020
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