Los Angeles (and the rest of the country) is filled with entrepreneurs and business owners. If you're young, you've probably never thought about this, but what happens to your business if you pass away or lose the capacity to work? This is where business succession planning comes into place.

Business Entities?

If you run a business, it is probably worth creating some sort of business entity for the purpose of operating it. For example, if you have (or are growing!) a real estate empire, it may be worth utilizing one or more LLCs to hold those interests. In addition to potential liability protection, the government documents for the business entity, whether it is an LLC, corporation, or some other form of business entity, can provide details about how profits are to be split (if you have more than 1 partner), as well as provide a plan for who will manage the business in the event a partner passes away or is not able to actively participate in the business.

Intersection With Estate Planning

As part of the estate planning process, the estate planning lawyer may discuss:

1. Forming a business entity to hold your business(es) and drafting the appropriate LLC Operating Agreement, Partnership Agreement, Corporate Bylaws or Shareholders' Agreement.
2. Assigning your interest in the business entity to your revocable living trust.
3. Assigning all or a portion of your interest in the business to others, including family or other associates.

Planning for your business can help to ensure that your family and other business partners are able to maximize the value of the business and that the business remains productive long after you pass away. It can also be a good tool to teach younger generations how the business works and instill in them values that may be of importance to you.

One of the most common estate planning documents in California is the Revocable Living Trust. You can think of a Revocable Living Trust kind of like a container to hold your assets while you're alive. This container is governed by a set of specific instructions that you lay out in the document that creates the trust, and tells others how the assets inside the trust are to be used for your benefit while you're alive and how the assets are to be distributed after you pass away. Depending on your marital status, there will be different ways to create a trust.

Single Person

If you're single, or not married and not in a registered domestic partnership, you will most likely have a revocable living trust that holds all of your own assets. Also, any assets that use a beneficiary designation, such as life insurance policies or retirement accounts will likely have the trust named as its primary beneficiary so that the proceeds from those assets can be distributed in accordance with the revocable living trust provisions.

Married Persons

If you're married, it is likely that you and your spouse will create a single joint revocable living trust that holds both of your assets--whether it is community property or the separate property of both spouses. Occasionally, couples will create 2 or more revocable living trusts--one to hold the couple's community property, one to hold one spouse's separate property, and perhaps one more to hold the other spouse's separate property. The specific combination will depend on factors such as:

1. Whether and/or the amount of separate property that each spouse has.
2. The value of the assets that the spouses' own overall.
3. The similarity or disparity in how each spouse wants to distribute his or her assets.
4. Other personal factors such as each spouse's belief in the other's ability to handle financial affairs.

Day-to-Day Life Remains the Same

So long as you (and your spouse, if you have a joint living trust) are alive and fully functioning, there's no practical change to how you handle your financial affairs once the trust is set up. Because revocable trusts can be amended, changed, or revoked by you, they do not provide any immediate benefit for tax or creditor purposes (though this is not necessarily the case after you pass away). If a trust is revocable and amendable, then:

1. Transferring assets to the trust does not cause any adverse tax consequences.
2. Income taxes as a result of rent, dividends, capital gains or losses are treated the same as it was prior to creating the trust. 
3. The trust assets will be included as part of your estate.
4. There is no reassessment of your real estate for real property taxes (a huge benefit for long-time residents in counties where the property tax bases tend to be much lower than the fair market values of the property, such as in Los Angeles County).

Schedule of Assets

In most trust documents, there's a separate schedule which lists all of the assets that you own and is supposed to be contained within the trust. This is helpful for at least a few purposes.

First, if you die and haven't otherwise kept a good record of the property that you own, this schedule can be useful to your successor Trustee, who can use the list to track down your assets.

Second, if you forgot to re-title those assets in the name of your trust, it could serve as the basis for a "Heggstad" petition, which is a special procedure to transfer those assets to your trust without the need to go through a full probate process.

So there you have it, a few basics of a revocable living trust. 

Every estate plan should have a Will as one of its components. Wills, however, can come in several varieties and have different requirements depending on which one you select.

Formal Witnessed Wills

A formal Will is usually produced on a word processor or other text editor. It has to be signed by you (the creator of the Will, also known as "Testator") and be witnessed by 2 witnesses. Best practice is to also include the date the Will was signed on the Will itself.

California Statutory Will

If you have a very simple situation, very little in the way of assets,  or an immediate need (e.g., before you travel) it may make sense for you to utilize the California Statutory Will.  This Will is essentially a form created with the Probate code of the State of California. (See California Probate Code Sections 6200-6243).

Holographic Will

A holographic Will is one that is completely hand-written by the Testator. It must be completely handwritten by the Testator but it does not require witnesses.  

Ancillary Provisions in the Will

The Will should also designate someone to act as your "Executor"--he or she will be the person in charge of making sure that your wishes are carried out. The Will is also where you may appoint a guardian for any minor children that you have.  Finally, you may have a "power of appointment" that another person granted you, which may require you to exercise that power in your Will by including a provision in it. 

Pour-Over Will

Wills that are created in conjunction with revocable living trusts are often referred to as "pour-over Wills". The reason is that the primary function of the Will is to "pour-over" the assets into the revocable living trust that you created after you die. In this context, the Will is essentially a back-up document in case you forgot to properly re-title certain assets in the name of your trust. As mentioned in prior posts, avoiding probate is a major goal for most clients, and in most counties, Los Angeles included, the probate process can often take over a year to complete.