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Corporations & Professional Business
Interests
In General
Funding the Stock
Limited Exceptions
Special Trustees
Transfer on Death (TOD)
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: Many
professionals (such as doctors, lawyers, real estate brokers, etc.) own their businesses
in the form of a corporation. Each state has its own laws that regulate both the licensing
and conduct of professionals. Many states may restrict ownership of professional
corporations to only those individuals that hold the appropriate professional license.
Funding the Stock:
CAUTION! Funding
a professional corporation should only be done after your estate planning attorney has carefully reviewed your state’s
statutes pertaining to ownership of professional corporation stock. Funding professional
corporate stock generally involves changing the ownership of the stock to the name of the
trust. CAUTION: The transfer of the professional corporation stock to a revocable living trust may
violate a state law restricting the ownership of the stock only to those individuals that
are licensed professionals. If an ownership restriction is found to have occurred, the
corporation may be found to be invalid. Due to the legal complexities of
funding corporations, we strongly recommend that you consult with your estate
planning attorney prior to funding a corporation.
Limited Exceptions:
Some state statutes expressly allow professional corporate stock to be
transferred into a living trust so long as the trustee is a licensed professional. This
exception may still be problematic if someone other than a professional is serving as a
co-trustee (e.g. such as the spouse of the professional, as is not uncommon when planning
for married couples!). Fortunately, many state lawmakers have foreseen this inherent
problem and have provided for a solution through careful legal document drafting.
Your attorney will be able to outline these solutions for you.
CAUTION:
Due to the complexities in funding corporations with non-professional co-
trustees, we strongly recommend that you consult your estate planning
attorney to determine what specific
funding strategies are in the best interests of your family, estate, and
corporation.
Special Trustees: While
the licensed professional is alive and healthy, the professional stock can be held in the
trust. A new problem may arise in the event of the disability or death of the
professional/trustee. A simple solution may be for your attorney to exercise care in the drafting of the
document to include a provision for an appointment of a special trustee that is also a
licensed professional. Usually the "special trustee’s" powers are limited
only to issues dealing with the professional stock. To determine if an
appointment of a "special trustee" is an appropriate planning
strategy for your circumstance, we recommend that you seek customized counsel
from an estate planning attorney with experience in trust funding.
Transfer on
Death (TOD): Another alternative for your attorney to consider is the use of a transfer on death
(TOD) designation. A transfer on death designation is a contractual provision that is
added to both the stock certificate and into the corporate record book. The TOD
designation may not be available in your state. It will be important that
you consult your estate planning attorney to determine whether this option is
available in your state. NOTE: A TOD
designation will not provide any protection to the client in the event of a disability.
Your attorney should consider drafting a limited special power of attorney to maintain continuity during a
disability. Even if a TOD may be available under your state’s laws, there
still may
be restrictions that require the professional stock to be liquidated after death.
CAUTION: Due to the complexities
of funding a professional corporation, we strongly recommend that you
consult with your estate planning attorney on this matter.
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an Attorney with trust funding services
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