If Your Business Is Suited For a Trust, Then I Trust You Have One!
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 significant 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 one or more 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.
Business Trusts
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:
They are asked in advance and grant permission for the transfer;
You remain personally liable on the loans; and
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:
To plan your estate properly so you can protect your business from having to assume any personal debts you might incur.
To protect business assets from seizure by creditors in the event a business owner owes large, delinquent personal debts.
To manage family wealth for minors who are not yet able to manage the assets.
To minimize taxes and avoid pitfalls. Once you have a valuation of your business, you can investigate various ways to minimize the tax burdens incurred by your own personal investments or the business. With fewer tax burdens, there are fewer debts to satisfy and a better outlook for the continued health of the business.
This is a very brief and consolidated overview of business trusts. There are numerous types of trusts for both businesses and personal use.
Bottom Line: Get the facts and learn the best ways to protect what you have built.
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Nevada's Tax Laws
have changed
Effective July 1st, 2015:
Be aware that if you are currently incorporated
in the state of Nevada, or are considering becoming incorporated
in Nevada, 2015 changes to the tax laws may directly affect
and increase the costs to your business!
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!
TRYING TO DECIDE WHICH STATE is best to
incorporate your new business? MyLLC strives to provide
you with up-to-date information and exceptional customer
service. Contact your tax advisor to review your options
and then talk to MyLLC's Incorporation Professionals to
assist you in filing your articles of incorporation as well
as provide you with Registered Agent services!
MyLLC is committed to assisting you in this process but
you must contact us today!
Call us toll free at 888.88.MYLLC or fill
out the contact form so one of our experts can help you.