A business trust is a legal structure in which the trust technically owns the business and the business is managed by a trustee for the benefit of others.
Unlike a limited liability company (LLC) or corporation, a business trust is governed by the trust agreement that outlines how the business will be run and how profits will be distributed to its beneficiaries. The trustee, like all other trustees, is legally obligated to act in the best interests of those the trust benefits.
Is a business trust right for a family business?
A business trust can offer several advantages to family operations, especially in the following areas:
- Succession planning: A trust allows the founders to lay out clear instructions for how the business will be managed after they are no longer involved, which can help with continuity and avoid family conflicts.
- Asset protection: This is a key area of concern for family businesses, where the lines between someone’s personal debts and assets can be blurred with the company’s debts and assets. A business trust can protect family assets from depletion due to a member’s divorce, gambling debts, lawsuits and other creditor claims.
- Tax advantages: With careful planning, a business trust can help reduce the overall tax burden on the family business and its beneficiaries, allowing for a greater transfer of generational wealth over time.
- Management: This structure can allow for professional management of the business without the need for family members to give up ownership, keeping the business “in the family” while providing overall stability.
- Privacy: Trusts of all kinds offer a high degree of privacy, since the trust documents are generally protected from intrusion and do not need to be filed with the state the way that corporate documents might be.
A business trust is a powerful tool for family businesses whose owners are looking ahead toward the future. Learning more about this option can help you decide if it is the right method for your family operation.