ADVERTISING: ADVERTORIAL - Should your business be owned by your revocable living trust?

When Idaho business owners set up a revocable living trust, they’re usually careful to transfer the house, the bank accounts, and the brokerage assets into it. However, they may overlook the most valuable thing they own: the business itself.  

Leaving your company outside your trust can undo much of what the trust was built to accomplish. But moving it in isn’t always a simple matter — and for some businesses, doing it carelessly creates a tax disaster.

Why Put the Business in the Trust

Holding your business interest in your revocable trust offers the same advantages as for your other assets, with higher stakes:

• Probate avoidance. A business interest held in your name alone passes through probate — a public, months-long process that can paralyze a company at the worst possible time.

• Seamless succession. On your death or incapacity, your successor trustee steps in immediately to manage or sell the business, with no court order and no gap in authority. For a company that needs daily decisions, that continuity is everything.

• Privacy. A trust keeps ownership and transition out of the public probate record.

The Mechanics Depend on Your Entity

How you transfer ownership turns on your entity type:

• LLC: You assign your membership interest to yourself as trustee, update the company’s records, and — critically — check the operating agreement, which may need to be amended to permit the transfer.

• Corporation: Stock is reissued in the name of the trust and the stock ledger updated.

• Sole proprietorship: There’s no separate interest to transfer; the underlying business assets go into the trust. This is often a good moment to consider forming an LLC for liability protection.

The S-Corporation Trap

This is where good intentions cause real damage. S corporations have strict rules about who can be a shareholder, and trusts are only conditionally eligible.

During your lifetime, your revocable trust is a “grantor trust” and a fully permitted S-corp shareholder. No problem there. But when you die, the trust can keep holding the S-corporation stock for only two years. After that, it must qualify as a Qualified Subchapter S Trust (QSST) or an Electing Small Business Trust (ESBT) — and file a timely IRS election — or the company’s S election can be terminated entirely.

A lost S election is a costly tax event that harms every shareholder, not just your family. If you own S-corp stock, your trust has to be drafted with these rules built in. This is not a do-it-yourself area.

Watch the Gatekeeper Documents

Operating agreements, corporate bylaws, and buy-sell or shareholder agreements frequently restrict transfers — sometimes even to your own revocable trust — or require co-owner consent. Transfer your interest without reading these first, and you may trigger a default, a right of first refusal, or a mandatory buyout. Always reconcile the trust transfer with the entity’s governing documents.

A Few Idaho-Specific Notes

Idaho is a community property state, so a business built during marriage may already be owned partly by your spouse — which affects how it should be titled. Idaho imposes no state estate or inheritance tax, so for most owners the goal here is continuity and probate avoidance, not death-tax savings. Professional entities like PLLCs carry their own ownership restrictions worth confirming.

The Bottom Line

Your business is likely your most valuable and most fragile asset. Putting it in your revocable trust can protect it — but only when the trust, the entity’s governing documents, and the tax rules are coordinated. Done right, your company keeps running the day after you’re gone. Done carelessly, it becomes the problem you were trying to prevent.

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning probating estates or creating estate planning documents.  

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Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Kootenai Law at 208-765-6555, [email protected], or visit www.KootenaiLaw.com. 

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.