The devil is in the details. This expression is particularly valuable for business owners. While laws and requirements to become a legally operational business vary between states, there is one constant that remains: It's a lot of work. Hopefully, your hard work and the long hours and sacrifices have translated into assets that need to be managed and protected. You probably speak with your accountant and lawyer regularly, so next time be sure to ask whether or not creating a trust is right for you. I am neither a lawyer nor an accountant, so this article is meant to offer some insight that may assist you in asking the right questions. Since I'm not charging you by the hour, it's probably a good idea to garner a basic understanding of business trusts and narrow down some of the questions you never knew you had until now.
What Is A Trust and Who are the Key Players
A trust is a fiduciary arrangement that allows a third party ("trustee") to hold assets on behalf of a beneficiary or beneficiaries. The creator is often referred to as the grantor or donor. When he/she creates the trust, a trustee will be selected as well. Trustees manage the trust for the beneficiary, or the person who will ultimately benefit from it. Trusts can be arranged in many ways and specify exactly how and when assets pass to the beneficiaries. In order to be considered a business trust, the trust must have business activity, such as investing or buying and selling products.
Also called a common-law trust, a business trust essentially becomes the owner of the assets within it. Its beneficiaries may receive its profits or income, and they might also eventually receive disbursements of the assets. Business trusts protect business assets from creditors and lawsuits, and depending on the law and how the trust is created, it might also provide protection from certain types of taxation as well. Business trusts are often discussed in relation to corporations and partnerships. These trusts are unincorporated and are typically created as an alternative to a corporation or partnership. The trust can conduct a wide variety of business, including investing, buying and selling, yet it offers beneficiaries a limited level of liability.
In a business trust, the actual trust itself is the sole member of the LLC (and holds ownership). The trustee is the "manager" of the LLC, and your attorney would likely name you as trustee as well
alternate trustees so management could continue should something happen. The trust would also include provisions regarding how and to whom the trust's assets provide benefits. Initially, you receive the
economic benefits, and these later shift to someone of your selection (similar to a Will). When creating a trust, title for the business is transferred into the LLC. Your lawyer should assess the
terms of any mortgages to be sure that transferring ownership does not violate any clauses you agreed to when you borrowed the money if homes or property are included in your list of assets. Generally,
mortgage lenders will not object if: 1) They are asked in advance and grant permission for the transfer; 2) You remain personally liable on the loans; and 3) The terms of the mortgages that allow
foreclosure remain effective. Once this structure is established, only the assets of the LLC would be at risk. Thus, the trust is still at risk, but your personal bank accounts, investments, and real
estate are protected. Talk to a law firm whose attorneys have experience in this area, and talk to your CPA about any tax ramifications of shifting any rental properties into a Trust/LLC combination.
Why Should I Set Up A Business Trust: Common Reasons and Benefits
This is a very brief and consolidated overview of business trusts. There are numerous types of trusts for both businesses and personal use.
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What is your first step? Simply choose which of the following two options applies to your business:ALREADY INCORPORATED in the state of Nevada? 2015/08/15 - Your annual fees increased from $325 to $650, and that’s not including the Commerce Tax if it applies to your business! Further, you will now be required to file your tax return with the NV Department of Taxation with June 30th as the fiscal year, not the calendar year! Review these changes with your tax advisor immediately! If you choose to re-domicile your corporation in another state, MyLLC will file the re-domestication paperwork for you!
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