Becoming an entrepreneur, opening a business and taking control of your future are a big part of the American Dream. In the excitement of getting started, it’s easy to overlook the risk. Trusts for small business owners in California can mitigate some risks and protect assets if life doesn’t go as planned. Below you will find answers to some of the most common questions small business owners in Rancho Cucamonga, and the Inland Empire ask.
I have a California will. Isn’t that enough?
A will is a legal document that provides instructions for the distribution of assets upon your death. It outlines your wishes and serves additional key functions, such as:
- Appoints an executor who is responsible for managing the distribution of your estate.
- Appoints a guardian who will care for your minor or disabled children.
- Directs charitable contributions to organizations of your choice.
Although a valuable estate planning document, it does have some limitations.
- It must go through probate. This can become expensive and time-consuming as the court must approve the distribution of assets.
- You have limited control. The will only applies to property wholly owned by you at the time of your death. It doesn’t cover assets that are:
- Jointly owned
- Held in a trust
- Part of retirement accounts or life insurance policies with designated beneficiaries
- There is limited protection. A will doesn’t protect assets from lawsuits or creditors.
- There is no distribution control. A will only provides distribution instructions. Some assets require ongoing management, such as investment accounts.
- This is limited privacy. When your will goes through probate, it becomes a matter of public record. Anyone can access this information.
- It cannot address incapacity. If you become incapacitated, the will cannot address questions that arise. That must be done through a living trust or durable power of attorney.
Despite being a critical end-of-life document, a will has some significant limitations. Adding a trust to your estate plan can help you better care for your family before and after your death.
What can a California trust do that a will can’t?
A trust is a legal document that helps transfer, manage and distribute your assets. Its vital functions include:
- Asset protection
- Avoiding probate
- Asset management
- Reducing real estate taxes
- Flexibility, tailored to your needs and goals
There are several types of trusts, each with unique features and benefits.
What are the benefits of having a trust in California?
One of the primary benefits of a trust is that it allows your assets to pass to your heirs without going through probate. This can shorten the time and reduce the costs associated with your estate distribution. It also ensures that your family can maintain privacy. However, there are several other benefits as well, such as:
- Asset protection – Creditors, lawsuits and other legal claims do not affect the contents of a trust.
- Minor provision – A trust can provide for the needs of your minor children and ensures the assets you leave for them are managed on their behalf until they reach adulthood.
- Estate tax planning – In addition to ensuring your property is distributed according to your wishes, a trust can also help minimize the estate taxes your family will have to pay.
- Flexibility – A trust is not a “one-size-fits-all” planning instrument. It can be structured to meet your needs and those of your beneficiaries.
How can a trust help small business owners in California?
When a trust is part of your estate plan, it can ensure that your property is distributed as you wish and provide for the ongoing management of the business after your passing. There are several types of trusts, and each one has particular benefits. For example, an irrevocable trust can offer comprehensive asset protection, while a revocable trust protects against creditors. Other common types of trusts include:
- Spendthrift trust – Protects your beneficiaries from creditor claims. It is a type of irrevocable trust and provides for your heirs’ support and maintenance. The trustee you appoint has complete discretion regarding the distribution of the income and principal.
- Special needs trust – Also known as a supplemental needs trust, it provides financial support for individuals with a disability (or special needs) without risking their eligibility for government benefits such as Medi-Cal or SSI. You can choose between a third-party and a first-party trust, depending on your needs.
Talk to a Rancho Cucamonga Bankruptcy Attorney
As a small business owner in California, you have a lot on your plate. Talk to an experienced Rancho Cucamonga attorney before you have financial troubles and plan for the future. Terrence Fantauzzi can help you determine which type of trust(s) can meet your needs. He can talk with you about your options if you are considering bankruptcy. Contact us or call 909-552-1238 to schedule a free initial consultation.