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Build Trust If You Must, But Also Explore These Other OptionsLock Icon

3 min read

Trusts are valuable mechanisms for helping people plan their estates to maximize tax benefits, avoid public disclosure of financial details and helping manage beneficiaries’ future finances.

But trusts aren’t the only devices people can use to pass down their fortunes, modest or massive. While a will leaves finances open to probate, which can be lengthy and costly and is a matter of public record, it is better than having no plan at all.

“At a minimum, we recommend that everyone at least has a will,” said Bill Kerst, the president and CEO of Community First Trust Co. in Hot Springs. “It is ridiculous how many times we get involved every year in cases where people have died and they don’t have any type of document that says, ‘Where does it go?’ It’s just a good mechanism to have a plan in place.”

Similar to a trust, a limited liability company allows for people to own the assets held by the LLC. A proper operating agreement attached to the LLC, as is customary, makes transferring ownership of the LLC — and its assets — much simpler.

One way an LLC differs from a trust is that an LLC must be registered with the Arkansas Secretary of State’s Office, and requires a $150 annual franchise fee. Jennie Clark Stewart, a partner with Kutak Rock in Little Rock, said many businesspeople prefer LLCs, which are common in the business world.

“They are businesspeople and they want a business entity,” she said. “It’s just a matter of choice.”

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Alex Miller, a partner at Reece Moore Pendergraft LLP in Fayetteville, said an LLC works but is probably best used as a liability protection. Assets in one LLC are separate from assets in another LLC, even if the LLCs are owned by the same person; if someone sues LLC1 then the assets in LLC2 are protected, as is the owner’s other personal assets. “You want to protect the assets of the business from the owner’s personal creditors and likewise protect the personal assets from the business creditors,” Miller said.

If a client is just looking to leave cash to his children so they can spend the money to pay off debt or take a vacation, Miller said, a trust or LLC isn’t needed. A beneficiary designation can assign specific assets to a specific recipient — banks have “payment on death” allowances to show who gets the balance of an account when the account holder dies.

“A lot of times clients don’t realize that even without a will or a trust they can pass their assets on to the next generation with a beneficiary designation,” Miller said. “You can go down to your bank and add beneficiaries to your account. In Arkansas, since 2009, you can do that with real estate. You can do a beneficiary deed.”

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