As a business owner, you’ve poured your heart, soul, and countless hours into building your company. But have you taken the time to consider what will happen to your business if you become incapacitated or pass away? While it’s not the most comfortable topic to think about, properly planning future business ownership can help protect both your company’s future and your family’s financial security.

Whether you’re running a startup, managing a family business or hold equity in a private company, trusts can protect and transfer business interests that could be vital for their long-term success. Here’s how they work and what you need to know.

Why consider trust ownership for your business?

Many business owners default to keeping their business interests in their personal name, assuming they’ll deal with succession planning “later.”

But think about this scenario: You get sick, or have an accident, and are unable to continue to run your company. Who would make business decisions? While you might think a power of attorney would be enough, many financial institutions and business partners can reject or delay accepting power of attorney documents, especially if they don’t meet specific requirements.

A properly structured trust can create a more seamless transition of control, allowing your chosen trustee to step in and manage business affairs without disruption. This can be especially important if you are the sole owner or a key decision-maker.

Other reasons to consider a trust include:

• Avoiding probate: When you pass away, assets held in your individual name typically must go through the probate process. This means your business details become public record, operations may face delays waiting for court approval and your estate could incur additional costs and administrative burdens. By transferring your business interests to a trust, you can bypass probate and ensure a smoother transition for your successors.
• Succession planning: A trust allows you to specify exactly how you want your business to be managed and distributed upon your incapacity or death. You can name a successor trustee to oversee operations and provide detailed instructions for the eventual transfer of ownership to your chosen beneficiaries.
• Asset protection: Depending on the type of trust and how it’s structured, placing your business in one may offer some degree of protection from creditors and lawsuits. This can be especially valuable if your company operates in a high-risk industry.
• Estate tax planning: If your estate is likely to be subject to estate taxes, certain types of irrevocable trusts can be used to remove business assets from your taxable estate, potentially saving your heirs a significant tax bill.

Trusts can offer control and flexibility over your assets

One common misconception is that putting business interests in a trust means giving up control. In reality, trusts offer a way to maintain control while protecting assets and planning for succession.

For example, you might want your spouse to benefit financially from your business but prefer that operational decisions stay with your business partner. A trust can separate these economic and control rights, ensuring both goals are met.

Revocable vs. Irrevocable Trusts: What’s the difference?

When it comes to trust ownership of your business, you have two main options: Revocable Trusts and Irrevocable Trusts. Understanding the key differences can help you decide which type best serves your needs.

Revocable trusts

Also known as living trusts, revocable trusts can be modified or terminated by the grantor (the person who creates the trust) at any time. Here are the main features:

• Flexibility: With a revocable trust, you maintain complete control over the assets and can change the trust terms, beneficiaries, or trustees whenever you wish. This can be ideal if your business is still in the early stages or you anticipate needing to adjust your plan over time.
• Incapacity protection: If you become unable to manage your business due to illness or injury, your chosen successor trustee can seamlessly step in to handle day-to-day operations and major decisions per your instructions.
• Probate avoidance: Assets held in a revocable trust bypass the probate process, allowing for a faster, private transfer of your business to your beneficiaries.

However, revocable trusts have some limitations. Because you retain control over the assets, a revocable trust does not provide any meaningful protection from creditors or lawsuits. Plus, assets in a revocable trust are still part of your taxable estate, so there are no estate tax advantages.

Irrevocable trusts

As the name suggests, an irrevocable trust is one that generally cannot be modified or revoked once it’s established. The grantor essentially relinquishes control of the assets to the trust. Key features include:

• Asset protection: Since the assets are no longer under your ownership or control, an irrevocable trust can provide a barrier against creditors and litigation (assuming it’s properly structured and funded in advance of any claims).
• Potential estate tax savings: Business interests placed in an irrevocable trust are generally removed from your taxable estate, which can be a powerful tool for reducing your estate tax liability.
• Succession planning: Like a revocable trust, an irrevocable trust allows you to specify how your business should be managed and distributed to beneficiaries. The trustee is legally bound to follow these instructions.

The main drawbacks of irrevocable trusts are their inflexibility and loss of control. Once an irrevocable trust is set up and funded, you typically can’t modify the terms or take back control of the assets without beneficiary approval (and sometimes court approval). Additionally, placing a business in an irrevocable trust can result in the potential loss of a step-up basis at your death, which could result in higher capital gains taxes for your beneficiaries if, and when, they sell the business.

Transferring your business to an irrevocable trust also means giving up direct ownership and control, which can be a psychological hurdle for many entrepreneurs.

Key trust provisions business owners should consider

Regardless of whether you opt for a revocable or irrevocable trust, there are several key aspects your trust document should include if you’re a business owner:

Specific powers for managing the business

Your trust should explicitly authorize your trustee to continue operating the business, making investment decisions, hiring and firing employees, and taking other necessary actions to manage the company effectively. This helps ensure a smooth transition and continuity of operations.

Trustee succession plan

Name not only your initial successor trustee but also alternates in case your first choice is unable or unwilling to serve. Better yet, discuss the decision with your preferred trustee first to ensure they’re already willing and able to serve. You can also cConsider naming a professional fiduciary, such as a bank or trust company, if you’re not comfortable naming someone you know. Or you can name them as a backup to ensure there’s always someone qualified to manage the trust.

Beneficiary distribution instructions

Clearly outline how and when your business interests should be distributed to your beneficiaries. You might include provisions for the trustee to maintain ownership until certain milestones are reached, such as beneficiaries reaching a certain age or the business achieving specific goals.

Asset protection language

If creditor protection is a goal, your trust should include strong spendthrift provisions that restrict beneficiaries from pledging or encumbering their trust interests. This can help shield the business from beneficiaries’ personal liabilities.

Overriding the prudent investor rule

One often overlooked issue is the “prudent investor rule” that applies to trustees. This rule typically requires trustees to diversify investments and avoid concentrated positions. This could directly conflict with holding a controlling interest in a private business.

To address this, you may want to consider explicitly overriding the prudent investor rule in your trust document and grant the trustee power to maintain business interests. Without this provision, your trustee could actually be legally obligated to sell or diversify business holdings.

Dispute resolution procedures

Consider including mediation or arbitration clauses to resolve any disputes between trustees and beneficiaries outside of court, which can be costly and time-consuming.

One common challenge is balancing business operations with family financial needs, especially when family members aren’t involved in the business. One solution to this could be bifurcating trustee roles. Appoint one trustee (perhaps a business partner) to handle business operations and another (often a family member) to manage family financial matters.

Coordination with buy-sell agreement

If your business has multiple owners, ensure that your trust provisions align with any existing buy-sell agreements. Your trust should direct the trustee to carry out the terms of the buy-sell if triggered by your incapacity or death.

Considerations for specific business structures

The type of entity your business operates as can impact trust planning:

• Corporations: If you own shares in a C-corporation or S-corporation, you’ll need to review the company’s bylaws and any shareholder agreements to ensure they permit trust ownership. S-corporation stock can only be held by certain types of trusts, so it’s a good idea to work with an attorney to structure your trust the right way.
• Partnerships and LLCs: Review your partnership agreement or LLC operating agreement to see if it allows for trust ownership of shares. You may need to amend the agreement to accommodate your trust. Also, consider any restrictions on transfers of ownership and how they might impact your succession plan.
• Sole proprietorships: While a sole proprietorship is not a separate legal entity, you can still use a trust to hold and transfer business assets like real estate, equipment, and intellectual property.

The advisor’s role in trust planning

If you’re considering trust ownership for your business, your financial advisor can be a valuable resource throughout the planning process. They can help you clarify your objectives for the business, both during your lifetime and after you’re gone. They can also guide you in prioritizing competing goals like maintaining control, minimizing taxes, and protecting assets.

With a deep understanding of your financial situation and estate planning needs, your advisor can help you weigh the pros and cons of different trust structures and determine whether a revocable or irrevocable trust (or a combination) is best suited for your circumstances.

Your advisor is often just one tool to have in your financial toolbox. They can serve as a point person to coordinate the work of your estate planning attorney, CPA, and other professionals involved in the planning process.

As your business and personal circumstances change over time, your advisor can help you review your trust plan to ensure it remains aligned with your goals.

Is a business trust right for you?

Placing your business interests in a trust can protect your company’s future, streamline your estate plan, and potentially minimize taxes. But it’s not a one-size-fits-all solution. The right approach depends on your specific goals, family situation, and business structure.

If you’re considering trust ownership for your business, start by meeting with your financial advisor. They can help you review your options and develop a plan that safeguards your legacy and ensures a smooth transition for your company when you’re no longer at the helm.

As a financial advisor, helping your clients navigate the ever-changing tax landscape is a critical part of providing comprehensive wealth management services.

One major change on the horizon is the looming sunset of many provisions in the Tax Cuts & Jobs Act (TCJA) at the end of 2025, which could have significant implications for estate planning.

With trillions of dollars expected to pass between generations in the coming years as part of the “Great Wealth Transfer,” it’s imperative that advisors understand the potential impacts of the TCJA sunset and help clients plan accordingly, especially as it relates to their taxable estates.

In this post, we’ll dive into the key aspects of the TCJA sunset, explore who’s likely to be most impacted and outline estate planning strategies advisors can explore to ensure a smooth transition for their clients.

Understanding the potential Tax Cuts & Jobs Act sunset

The Tax Cut & Jobs Act, passed in December 2017, made sweeping changes to the U.S. tax code. However, many of the provisions affecting individuals and their estates are temporary, scheduled to expire on December 31, 2025 due to the budget reconciliation process used to pass the law.

Some of the most significant provisions set to expire include:

• Estate and gift tax exemption amounts reverting to pre-TCJA levels
• Individual income tax rate increases
• Reduction of the qualified business income (QBI) deduction for pass-through entities
• Lowering of the alternative minimum tax (AMT) exemption amounts

Unless Congress takes action to extend these provisions, the tax code will revert to its pre-2018 state, which could have major ramifications for high-net-worth individuals and families and their estate plans.

Who will be affected?

The TCJA sunset will primarily impact high-net-worth individuals and families—those with assets exceeding the post-sunset exemption amounts. This may include clients who hadn’t previously needed to worry about estate taxes but have seen their wealth grow in recent years and are now in danger of surpassing the lifetime exemption amount.

Certain individuals, like business owners or those with highly-appreciated assets, may be particularly susceptible to the impacts of the reduced exemptions. Blended families and unmarried couples could also face unique challenges and may require more complex planning.

That said, even clients below the exemption thresholds should review their financial plans, as there could be state-level tax consequences to consider. Plus, life circumstances change—what may not be an issue today could become one down the road.

The biggest potential changes of the TCJA sunset

Here’s a look at some of the biggest pending changes and how advisors can prepare.

Estate & gift tax exemption: Use it before you lose it

Perhaps the most talked-about aspect of the TCJA sunset is the impending reduction in the lifetime estate and gift tax exemption. Currently, individuals can transfer up to $13.99 million ($27.98 million for married couples) in their lifetime without incurring federal estate or gift taxes due to the TCJA. It’s important to clarify that this lifetime exemption amount is separate from the annual gift tax exclusion, which allows individuals to gift up to $19,000 per recipient in 2025 without counting towards their lifetime exemption.

But this historically high lifetime exemption means that currently, only a small amount of estates are subject to federal estate tax.

That could change dramatically in 2026, when the exemption is set to drop back down to around $7 million per individual, adjusted for inflation. Suddenly, many individuals who didn’t have taxable estates will be at risk of owing substantial estate taxes, ranging from 18% to 40% on the value exceeding the exemption amount.

This potential change is most relevant to clients who have been relying on ‌elevated exemptions for their estate plans—those with substantial wealth and assets to pass down. Advisors need to be proactive in developing strategies to minimize estate tax exposure, which could include:

• Gifting appreciating assets: Clients can take advantage of the current exemption by gifting appreciating assets, like stocks or real estate, to irrevocable trusts or directly to beneficiaries. The IRS has confirmed there will be no clawback for gifts made under the current exemption, even if the exemption is lower at the time of the donor’s death. This allows clients to remove asset appreciation from their taxable estates.
• Spousal Lifetime Access Trusts (SLATs): For married clients hesitant about giving up access to gifted assets, SLATs can provide a solution. One spouse funds an irrevocable trust for the benefit of the other, using their gift tax exemption. The beneficiary’s spouse can still access the funds if needed, offering flexibility and peace of mind.
• Grantor Retained Annuity Trusts (GRATs): GRATs allow clients to transfer assets to an irrevocable trust while retaining the right to receive annuity payments for a set term. If structured properly, appreciation beyond the IRS Section 7520 rate passes to beneficiaries tax-free at the end of the term.
• Charitable giving: The TCJA also raised the charitable deduction limit. Taxpayers who itemize can deduct up to 60% of their adjusted gross income—previously they could only deduct up to 50%. Clients who are considering a large charitable donation as part of their estate plan may want to act now before the limit reverts.

It’s important to weigh the trade-offs of these strategies. Gifting to irrevocable trusts can create long-term estate tax benefits, but advisors must carefully evaluate potential drawbacks. Relinquishing control and losing the step-up in basis at death could result in a substantial capital gains tax burden for heirs if the exemption doesn’t ultimately drop as expected or the client’s wealth ends up below the threshold.

Changing income tax rates could impact estate planning decisions

In addition to estate planning considerations, the TCJA sunset will impact clients’ income tax pictures. Tax rates are scheduled to increase across the board, with the top marginal rate rising from 37% to 39.6% and most brackets seeing a lowering of their income thresholds.

Here’s a closer look at how ‌individual tax brackets will change:

After the TCJA sunset, more individuals and married couples will find themselves in higher tax brackets. Depending on their overall financial picture, it might make sense for certain clients to incur taxes at today’s lower rates for the later benefit of their beneficiaries.

For clients in these affected brackets, advisors may want to explore strategies to accelerate income recognition while rates remain relatively low. Options to consider include:

1. Roth conversions: With tax rates poised to rise, Roth conversions become increasingly attractive. By converting pre-tax retirement accounts to Roth IRAs, clients pay tax on the converted amount now in exchange for tax-free withdrawals later. This can be especially smart for clients who expect to be in a higher bracket in retirement.
2. Harvesting capital gains: Clients sitting on highly appreciated assets may benefit from selling and recognizing gains before rates increase. Advisors can help clients identify opportunities to strategically offset realized gains with available losses.
3. Accelerating business income: Business owners expecting strong profits in the coming years might consider shifting income recognition forward to take advantage of current rates. Advisors can collaborate with CPAs to develop timing strategies around invoicing, collections and expenses.

Phaseouts of business income deduction and AMT exemption may increase taxable estates

Two other notable provisions sunsetting in 2025 are the 20% qualified business income (QBI) deduction and the expanded alternative minimum tax (AMT) exemption amounts. While these changes have broad financial planning implications, they can also impact estate planning by potentially increasing a client’s taxable estate.

With the loss of the qualified business income (QBI) deduction, affected business owners could see a jump in their taxable income, which may push them into a higher bracket and over the estate tax exemption. Advisors should work with these clients’ CPAs to explore entity restructuring to manage income tax liability and potentially preserve estate tax exemptions.

Similarly, the AMT may ensnare many more taxpayers post-2025, as the exemption amounts will revert to their much lower pre-TCJA levels. Common AMT triggers like high state and local taxes, significant capital gains, and incentive stock option exercises could inflate a client’s taxable estate. Advisors may want to encourage clients to accelerate income and exercise ISOs while the expanded AMT exemption remains.

Flexibility is key in an uncertain future

With any planning around future tax changes, the only certainty is uncertainty. It’s impossible to predict exactly what the legislative landscape will look like in 2026 and beyond.

It’s possible that many parts of the TCJA could be extended by Congress before the 2025 sunset. However, given the current political landscape and growing national debt, many experts view this as unlikely.

Even if an extension does occur, it may not be permanent. This creates an environment of uncertainty that makes long-term planning difficult—the approach for advisors and clients should be to hope for the best but plan for the worst.

That’s why, above all, advisors should prioritize flexibility in their clients’ estate and tax planning. Rigid strategies based on current law could backfire if the rules change unexpectedly. Instead, focus on crafting nimble plans that can be easily adjusted as circumstances change.

Some key ways to build flexibility into client plans include:

1. Revocable trusts: Unlike irrevocable trusts, revocable living trusts can be freely amended or revoked by the grantor during their lifetime. This allows clients to modify their plans as needed without losing control of trust assets.
2. Disclaimers & powers of appointment: Including disclaimer provisions and powers of appointment in estate planning documents gives beneficiaries the ability to adjust inheritances based on the prevailing tax environment. This can help optimize tax outcomes without locking clients into an inflexible structure.
3. Regular plan reviews: Advisors should commit to meeting with clients at least annually to review estate plans and tax strategies. Regular check-ins provide opportunities to assess how changing laws and circumstances may impact clients’ plans and make proactive adjustments.

Ultimately, the key to navigating the TCJA sunset successfully is to stay informed, start planning conversations early and remain adaptable. By taking a proactive approach, advisors can strengthen client relationships and cement their value as trusted guides through an uncertain tax landscape.

See why advisors and clients love wealth.com