Watch Our Educational Masterclass!

Get The

Peace Of Mind

You Deserve

Business Trusts: Why Do I Need One?

Estate Planning For Life's Stages

Attorney Looking Over Business Trust Paperwork
Trusts could be an incredibly powerful tool to help business owners protect their business and reach their wealth goals.

As a small business owner, your day is often filled with a steady stream of questions concerning day-to-day activities. Long-term planning questions about how to expand the business, set business priorities or identifying vulnerabilities may be lost in the flood of events requiring your immediate action. A business trust may be the last thing on your mind – however, establishing one can be key in protecting your business for years to come.

Let’s take a break from the crazy & chat about the longevity of your business. Take a moment and consider:

  • How can I minimize taxes?
  • How do I ensure my assets are protected?
  • What kind of legacy do I want to leave with my business?

All three questions can be answered through estate planning. Trusts are a well-known tool to tackle and solve these issues. Let’s dive into the benefits of setting up a business trust and how it can help you protect your business.

The Basics of a Trust

A trust is a legal entity created when one party (grantor) gives another party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiaries). Trusts are used to provide protection for assets for individuals and businesses. For business owners, trusts protect beneficiaries and thwart potential creditors (including previous spouses) from gaining direct access to assets held within the trust.

Trusts are used in business succession planning and should be created to align with business legacy objectives, whether the plan is to sell the company to outsiders, employees or keep it in the family. Succession plans must be properly documented with your estate planning attorney, CPA and financial advisor working in tandem. A succession plan should also address the goals for the business owner’s life after the business is sold or transferred (Do they want to remain on the board of directors? Do they require income from the business to maintain their costs of living?).

A succession plan, like an estate plan, needs to be created long before it is needed. Ideally, a succession plan is created not long after a business is established and revised as time goes on. When the company attains certain milestones, the plan should be updated.

How a Business Trust Works

By establishing a business trust, you can help save on future taxes. Here’s how: all future growth of assets transferred to an irrevocable trust occurs outside of the estate. It will apply to your lifetime exemption, but all future growth occurs estate tax free.

For example, let’s say a business owner transfers a business worth $3 million into an irrevocable trust and years later, the company is sold for $17 million. The increased value is not subject to estate taxes, saving family members a significant amount of money.

Note: these types of trusts need to be created with an experienced estate planning attorney to achieve the desired goals.

Benefits of a Business Trust

There are many benefits to creating a business trust, including:

  • Maintaining privacy. For companies and individuals who live in the public eye, placing assets in a trust means only the grantor and trustee need to know about the assets. A person who lives in a small city and owns a few restaurants may not want their personal financial matters to become known when they die. Wills become public documents when the estate is probated; trusts remain private.
  • Legal protection. Litigation arising from sales of small businesses is among the most common legal actions filed against business owners. By removing assets from ownership, the business owner receives another layer of protection. You can’t be sued for assets you don’t own.
  • Minimizing taxesPreparing for a liquidity event is an excellent reason to consider creating a trust. Depending upon its structure and the laws of the estate, a business owned by a trust may minimize or avoid state income taxes on a substantial portion of the estate income tax.

In summary…

A business trust can be a powerful tool in business succession planning to help minimize taxes, provide legal protection, and help minimize taxes. Your trusted estate planning attorneys at Ozarks Legacy Law can help you navigate the process of creating and establishing the trust.

Book your free consultation with the Ozarks Legacy Law team today.