A voting trust provides the trustee an irrevocable right to vote stock in a corporation for a designated period-10 years for common stock. A trust that gives the trustee the right to sell stock, or receive dividends paid on the stock is not considered a voting trust.
When Should You Consider Using a Voting Trust?
There are many reasons to benefit from using a voting trust: -They are not restricted to closely held businesses; they can be used with corporations of any size. -Large and even publicly traded corporations can use voting trust arrangements for holding stock of subsidiary or parent corporations. -Certain shareholders may prefer not to be actively involved in business matters and like the idea of not having to vote or be involved in these matters. -Certain shareholders may want to form a group and vote their shares as a block to have more influence. The voting trust can provide greater certainty for a longer period. -If a parent is considering a voting trust arrangement for making gifts of stock to their children and grandchildren, it is essential that they review the estate tax rules associated with this arrangement. Otherwise, a parent who retains voting control through a voting trust arrangement risks causing the stock to be included in their estate for estate tax purposes.
How Does A Voting Trust Work?
-Shareholders who will participate in the voting trust arrangement must retain a lawyer who will review the estate tax issues, and if all is acceptable, prepare the voting trust agreement. -The corporation must approve the voting trust agreement. This usually involves action by the shareholders or board of directors. -When all the participants agree on the terms of the agreement, a trustee is selected. The agreement is then signed by all the participants. -Each shareholder who has joined the voting trust would then tranfers their stock certificates to the corporation, which then transfers the stock to the trustee of the voting trust. -The trustee issues voting trust certificates to each shareholder.
How Does A Voting Trust Affect Other Trust Planning? You should be able to have your will, or even a revovable living trust transfer your voting trust certificates and the stock to a testamentary (will) trust on your death.
In conclusion, voting trusts are a flexible and useful way to control the voting interests in a closely held business. They can be used in estate planning, financial planning, as well as divorce planning.
Go To Page: 1 2
