Yes, a testamentary trust can absolutely hold shares of a closely held corporation, though it requires careful planning and consideration to ensure a smooth transition and avoid potential complications. A testamentary trust, created through a will and taking effect upon death, offers a valuable mechanism for managing assets, including the often-complex ownership of a private business. It allows for continued management and distribution of these shares according to the deceased’s wishes, beyond simply passing them as a lump sum. This is especially crucial for family-owned businesses where maintaining continuity and preventing disruption are paramount. Approximately 30% of family-owned businesses transition to the second generation, highlighting the need for robust estate planning tools like testamentary trusts to successfully navigate these transfers.
What are the key considerations when including closely held stock in a testamentary trust?
Several factors demand careful attention. First, valuation is critical. Closely held stock isn’t traded on public exchanges, so determining its fair market value for estate tax purposes can be complex and may require a qualified appraiser. The IRS scrutinizes these valuations, and discrepancies can lead to penalties. Secondly, transfer restrictions outlined in the corporation’s shareholder agreement must be meticulously reviewed. These agreements often dictate who shares can be sold to, or require right of first refusal to existing shareholders. Failure to adhere to these restrictions can trigger legal battles and disrupt the business. Finally, liquidity concerns are paramount. Unlike publicly traded stock, closely held shares aren’t easily sold to raise cash for estate taxes or distributions to beneficiaries. Careful planning, potentially involving life insurance or a buy-sell agreement, is often necessary to address this.
How can a testamentary trust help with business succession planning?
A testamentary trust serves as a powerful tool for business succession. It allows the deceased to specify how the shares should be managed, whether by family members, professional managers, or a combination of both. The trust document can outline voting rights, dividend distributions, and even restrictions on selling the shares to outside parties. This provides continuity and ensures the business remains aligned with the owner’s long-term vision. Consider the case of old Man Hemmings, he owned a successful regional trucking company. He’d spent his life building it and wanted to ensure it stayed in the family, but his children weren’t interested in the daily operations. Through a testamentary trust, he stipulated that the shares be managed by a professional management team, with the income distributed to his children, safeguarding the business’s future and providing for his family.
What happened when someone *didn’t* plan for closely held stock?
I once worked with the family of Mr. Abernathy, a local winery owner. He passed away without a clear estate plan, and his will simply bequeathed his shares in the winery equally to his two children. Neither child had any experience in winemaking, and they immediately began arguing over how to run the business. One wanted to expand production, while the other preferred to maintain the existing boutique operation. The disagreements escalated, leading to legal battles, a significant drop in wine quality, and ultimately, the near-collapse of the winery. It was a heartbreaking situation that could have been easily avoided with a properly structured testamentary trust and clear succession plan. The legal fees alone exceeded $150,000, and the family lost years of income and goodwill.
How did a testamentary trust save the day for the Miller family?
The Miller family owned a thriving construction company, but Mr. Miller was concerned about his youngest daughter, Sarah, who had a disability and required ongoing care. He created a testamentary trust that stipulated the shares be held for Sarah’s benefit, with the income used to fund her care and maintain her quality of life. The trust also named a trustee with expertise in special needs trusts, ensuring Sarah’s financial security and well-being. The shares were managed professionally, generating a steady stream of income that allowed Sarah to live comfortably and receive the care she needed, all while preserving the family business for future generations. This is a common scenario, approximately 1 in 5 adults experience a disability, highlighting the importance of considering these needs in estate planning. The carefully crafted trust not only protected Sarah, but also allowed the business to flourish, demonstrating the power of proactive estate planning with a testamentary trust.
“Estate planning isn’t about dying; it’s about living – ensuring your assets are used as you intend, both during your life and after.” – Steve Bliss
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
estate planning
living trust
revocable living trust
family trust
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estate planning attorney near me
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “How does a living will differ from a regular will?” Or “What is ancillary probate and when does it happen?” or “How do I update my trust if my situation changes? and even: “What happens if I miss a payment in Chapter 13 bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.