When you put your business assets into a trust, you protect them from legal proceeding, which is highly beneficial if your own a family-run company. This option is a smart one, but it doesn’t come without its own obstacle. To answer the question once and for all, we take a look into the advantages and disadvantages of obtaining a business trust, looking into the legal jargon that often overcomplicates things.
What Makes a Trust?
Different to a limited company set up, a business trust isn’t a separate legal entity in itself. When broken down, it is a business structure where the trustee – often a registered company – conducts business for the benefit of the trust’s members. The trustee responsibility is then to distribute the trust’s income out to its beneficiaries, whilst safeguarding its overall financial health. This can sometimes incorporate larger business decisions such as the sale of assets or money lending. A trust will also come with an appointee, who has the power (as laid out in the trust deed) to remove the trustee and appoint someone else in their place.
What Trust Type Will You Need?
For businesses, a company typically acts as the trustee, with each beneficiary being designated a certain number of ‘units’ in the trust. It is these units that outline how much income that member will actually receive. In addition to this, discretionary trusts can also be created for businesses. More often than not, this will be family trust, where the trustee has full power over the funds that are dished out to the beneficiaries. You can also look to embark upon a hybrid trust that combines units and discretionary trusts depending on your set up and preference.
What Is the Downside?
In contrast to a partnership or sole trader set up, a trust can often be expensive to put in place with required fees from trust solicitors on an ongoing basis. The initial installation fee can typically be reduced if a pro-forma trust deed is used but this can be complicated so it is best to seek professional insight from trust solicitors in Manchester. If you opt to be more private than what you’d see of a company, the legal and compliance trust requirements become a lot more difficult and stricter. Something worth noting is that a trust comes with a limited life span, which is commonly a total of 99 years.
Trusts can be highly beneficial for family run businesses as they offer tax advantages and flexibility in regards to how profits are distributed to beneficiaries. It simply depends on your situation but whenever making a decision that is of such importance, it is always best to seek legal advice to highlight if a trust is the correct path for your business. Whether you choose to go with a trust, partnership, company or sole-trader arrangement, it is vital that you understand your specific needs before signing on the dotted line to avoid an unneeded costs and headaches.