Dedicated To Professionalism And Personal Service

What is a business trust and how does it work?

On Behalf of | Jun 27, 2023 | Business & Transactional Law

Many people are familiar with trusts and trust funds connected to an individual or a family. However, if you own an Idaho business and want to pass it down to children or other family members, consider a business trust.

Defining business trusts

These legal instruments can become part of the estate planning process as they are similar to family trusts., but entrepreneurs can also use them to run their businesses. A business trust holds the rights to someone’s stake in a company. Thus, it is the legal entity owning a business and overseeing business transactions. These trusts can have one or multiple beneficiaries. You can choose between multiple trusts to own your business or a single one. Entrepreneurs place their businesses in a trust primarily to safeguard them against taxes and other liabilities.

Types of business trusts

When considering business trusts, you’ll find three main categories, each with specific advantages:

  • Grantor – a self-contained trust where the grantor has complete control and pays taxes on the profits
  • Simple – the trustee distributes profits directly to the beneficiaries
  • Complex – the trustee distributes business income and other funds to beneficiaries and other entities like charities

Setting up a business trust

Business trusts can be difficult to set up, so weigh your options carefully before you decide to do so. They can also be difficult to get out of, so you’ll probably have to operate in this matter for as long as your company exists.

Determine the critical elements of your trust before you get started. Business trusts protect you from individual liability and provide an additional layer of privacy. On the flip side, they are expensive and can become time-consuming to maintain to ensure your business operates properly.