It is important to protect your business as well as your personal interests when you own a company. A business trust is one option that is available to company owners. A trust may be used in place of a traditional type of organizational structure, such as a limited liability company (LLC) or corporation. Business trusts offer some advantages that may be beneficial to business owners, especially for businesses that own real estate.
What is a Business Trust?
A business trust is a legal arrangement that provides for a party or entity to have control over a business. A business trust is also sometimes called a corporate trust or an unincorporated business organization (UBO). A business trust may be revocable or irrevocable. A revocable trust is known as a living trust, and the grantor may make changes to it until death. An irrevocable trust is not easily changed once it is put in place. There are several types of trusts.
Grantor Trust – A grantor trust is controlled by the person who puts the property and assets into it. The grantor maintains control over the trust and continues to have authority over it, including distributions. For tax purposes, a grantor trust is considered part of the grantor’s income, and they must pay taxes on it.
Simple Trust – A simple trust is a structure that requires the principal assets to remain intact. Distributions may be made from income generated by the trust assets. A simple trust may file a separate tax return and may be entitled to various expense deductions.
Complex Trust – A trust that does not meet the IRS definition of a simple trust is categorized as a complex trust. A complex trust differs from a simple trust in that it is allowed to accumulate and distribute income and make or receive charitable donations. Complex trusts must file tax returns and are allowed certain deductions.
Benefits of a Business Trust
There are some benefits of putting your business in a trust. A trust may be easier to form than other business structures, so it simplifies the process of starting your business. One of the most important advantages of a business trust is that it protects your company’s assets from creditors. In most cases, it allows you to separate the assets of your company from your personal assets, which is similar to the LLC.
The business trust also affords greater privacy since it does not enter the public view as do other types of business structures. A business trust also provides some benefits after the death of the business owner. A trust may help eliminate the need for probate. In addition, a business trust will reduce or eliminate estate taxes. These benefits help make the business trust a good choice for the structure of your new company.
Putting your business in a trust may make sense, and it might be the right choice for you. Count on our experienced legal team for guidance in learning more about business trusts. Call us today at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or reach out to us online for more information.