Credit: Terry Johnston/ Wikimedia Commons
Most small business owners who don’t have a trust don’t bother to create one because the topic is too difficult to think about.
Moreover, you’re so wrapped up in the day-to-day operations of your business that you don’t even have the time to consider a period in which your business could one day operate without you.
No entrepreneur wants to imagine a time when they cannot take an active role in their business. However, every small business owner needs a trust. Read below to find out why.
What Is A Trust?
A trust is created by one party (trustor) who transfers assets to a responsible person or entity (the trustee) for the benefit of designated persons (beneficiaries).
Pretty simple, right?
Yet, many business owners have no estate plan in place to protect their business. In a survey conducted by Forbes, about 30 percent of the business owners surveyed said they didn’t have an estate plan because there wasn’t a need.
This is not surprising, given that a recent polling found that only 46% of Americans have a will that describes how they would like their money and estate to be handled after their death.
However, a trust can make sure your business doesn’t come to a halt without you.
The Risks Of Not Setting Up A Trust For Your Small Business
There are risks associated with forgoing or prolonging setting up a trust. One of the biggest issues that people don’t understand is that often, money from a business will be used to satisfy the debts of a business owner’s private affairs.
A poorly planned estate can mean that there’s not enough money to satisfy the personal debts of the business owner. If a situation like this were to occur, the government will turn to the business to pay the debts.
The business will either have to pay or assume the debt. Either situation can leave a business trapped.
This can cause the business to shut down, for crucial operating capital is taken to offset personal debts.
However, when you create a plan for how your business will weather your absence, you can plan for how your business can continue and grow without you.
The Benefits Of Setting Up A Trust For Your Business
A clear, concise, and properly executed trust allows your business to keep running without having to go through probate or trust litigation incidents.
Setting up a trust now enables you to anticipate any uncertainties regarding personal financial obligations and account for them.
Lastly, setting up a trust involves creating a succession plan. A succession plan is a detailed layout of what employees are expected to do in your absence. This creates a clear chain of command for someone to succeed you so that your business can continue to run smoothly without you.
The idea of your business running without you is a scary and daunting thought. However, setting up a trust puts both your business and your family in a much better position financially than if you choose not to.