A business trust is one vital arm to the entire body of a running business. Also known as common law trusts, business trusts, such as grantor, simple, and complex trusts, give a trustee the authority to manage a beneficiary’s interest in the business.
These trusts can get complicated with all of the federal laws and state heaped onto them, so it would be beneficial to hire a business attorney armed with the legal expertise to sort through the legal documents and agreements to protect your business now and in the future.
What are Business Trusts?
When the assets, debts, properties, and profits of a business are managed by an appointed trustee, a business trust is founded. Business trusts serve to protect people from creditors, taxes, and lawsuits. Profits are given to the beneficiaries, who will receive the funds from any income-producing assets.
A trustee’s responsibilities include:
- Managing the operation of the business
- Making decisions that are in the best interests of the business’s beneficiaries
- Holding the business title, with beneficiaries receiving the proof of interest certificates
What are the Different Types of Business Trusts?
There are three types of business trusts that are established for the benefit of a business or an individual related to the business: grantor, simple, and complex.
Here is a closer look at the legal differences between each:
- Grantor Trust. This kind of trust is created by a grantor, who has to pay taxes on the trust’s income and has complete control, including how the beneficiaries are to be distributed.
- Simple Trust. The trustee of a simple trust distributes earnings made on the assets, but that does not include the principal amount.
Complex Trust. Just as the name implies, this trust’s complexities include funds that must be distributed to charities and all or some distributed to beneficiaries. It is also required to make some sort of income.
How Much Do Business Trusts Cost?
The set-up costs of business trusts vary, depending on the type and situation of each business. It could cost as high as $5,000 – even more. The factors that increase the price include:
- The number of beneficiaries included
- The business structure is complicated, with multiple assets involved
- Additional legal advice, including writing contracts and representation in hearings or civil court trials
What are the Benefits of Business Trusts?
Several benefits of business trusts are:
- The structure offers more privacy than a traditional one.
- The beneficiary distributions are flexible.
- The appointment of the corporate trustee comes with limited liability.
The disadvantages of business trusts are:
- It is difficult to remain legally compliant.
- It is expensive to open and maintain.
- It has a maximum limited lifetime of 99 years.
What are the Advantages of Working with a Business Trust Lawyer?
If you would like to set up a business trust, it is best to secure a business attorney experienced in this field that knows how to establish one, set it up, and walk you through all of the legal elements that could protect you every step of the way.