The Professional Corporation Trust - Preserving the Value of
Your Practice
By Steven W. Allen
When he died unexpectedly of a heart attack, an orthodontist's wife became trustee
of the stock in his professional corporation. Because she was successor trustee
of the professional corporation trust that owned the practice she was able to sell
the ongoing practice at full monetary value within two weeks after her husband's
death.
If the orthodontist's practice had gone into probate, the practice could have quickly
lost half its value-or more-for one simple reason: If the dentist isn't there when
the patients need their braces adjusted, the patients, out of necessity, will take
their business elsewhere.
Professional Corporation Trust Holds the Stock
Licensed professionals have a specific reason for establishing a revocable living
trust and naming themselves as grantors and sole trustees. Doctors, lawyers, accountants,
and other professionals who own their own professional corporations can set up their
trusts to satisfy all legal requirements and still avoid probate in the event of
their deaths thus allowing it to be sold or liquidated while it has value.
The stock in a professional corporation must be owned by the individual with the
professional license, for example, the doctor, the lawyer, or the orthodontist.
The law makes an allowance for the "professional corporation trust" to hold the
stock owned by the licensed professional in the professional corporation.
Successor Trustee May Sell...Not Practice
The professional corporation trust is simply a revocable living trust with a specific
purpose: to keep a licensed individual's interest in a professional corporation
out of probate in the event of the death of its owner. This trust has certain restrictions.
The successor trustee may administer the trust to sell its asset-the stock in the
professional corporation-but not to practice the specific profession (e.g., medicine,
law, or dentistry).
Preserving the Value of Your Business
With this planning, a business won't be subject to a dramatic loss in value upon
the death of the professional. Should the grantor meet an untimely demise, a successor
trustee can have the authority to immediately liquidate the corporate assets or
sell the ongoing business. In this way, the professional practice won't be too badly
disrupted-as it most certainly would be if the practice had to go through probate.
The monetary value of the practice can remain basically intact.
The orthodontist established a revocable living trust and named a successor trustee.
This planning greatly benefited his family and buffered the shock of his untimely
death. His foresight and planning preserved the value of his practice for his family
and the continuity of his practice for his patients.
Imagine if you were in his place, with your present estate plan
what would happen to your practice?
Steven W. Allen has been a practicing Estate Planning attorney for over 30 years
and is the author of four books including "You Can't Take It With You...So How Will
You Leave It Behind?". Visit http://www.WillsvsTrusts.com for tips and tools
on Estate Planning.
|