When people think of estate planning, the first ideas that typically come to mind are of wills, trusts, powers of attorney, and guardianship arrangements. Traditionally, those instruments have been closely associated with estate planning simply because they are legal tools exclusively dedicated to helping people pass on their assets or otherwise ensure that loved ones are cared for.
Another common thought is that I can just do this myself. With the internet comes a vast amount of information and tools. However, a person may not practice law in the State of Texas unless they are licensed by the State Bar of Texas per Section 81.102 of the Texas Government Code. In fact, the unauthorized practice of law is prohibited by Section 81.106 of the Texas Government Code. There will always be the shadetree “lawyer” who is going to do it himself or herself. Most of these homegrown documents or instruments end up creating problems that cost more in the long run.
While the traditional tools work very well at accomplishing their designated tasks, you might be surprised to learn that they are not the only tools available for estate planning. Depending on your particular assets and desires, then the use of a limited partnership, limited liability company, corporation may be right for the situation.
All of the business entities mentioned above are common when a business is owned by different individuals. While the primary purpose for forming one of these business entities is for liability protection, they also provide for a means to manage the business and eventually shift ownership.
Limited partnerships have general and limited partners, the general partner(s) are responsible for management and decision making. The limited partners are investors or owners with no management or decision making authority.
Limited liability companies and corporations have either membership holders or shareholders. Typically the membership/shareholder(s) elect the officers who are responsible for management or decision making. Thus, the membership/shareholder(s) with the greater number of membership interests or shares control.
The interests in all of these forms of business entities are something that can be transferred over time, therefore making a perfect vehicle for parents or grandparents to maintain control over assets owned by the business entity until they pass away or are ready to shift the majority of the ownership over to the next generation for control. An additional benefit is that the family also has liability protection. So, using a family owned ranch/farm for example, if one family member is sued or found liable in some accident, then the assets of the other family members in ranching/farming business with them are not susceptible to being taken. Another benefit is that incidents such as incapacity, death or divorce, can be addressed in the governing documents. This means that should one of these events occur, there is a plan for how the property owned by the business entity is transferred.
If you are thinking of working on your estate plan, then perhaps one of these business entities is right for you. Or maybe you are a candidate for a more traditional plan. In either case, you should sit down with an attorney familiar with traditional plans and business entities to find out what estate plan is best for your needs.