When it comes to trusts,
most people are familiar with individual trusts, trust funds or family
trusts that are connected to an individual or family. But another type
of trust exists for entrepreneurs and companies called business trusts,
which are also known as common law trusts. A business trust is a legal
instrument that can be used to delegate the authority to manage a
beneficiary stake in a certain business. It can also be used to run the
business itself. However, there are multiple types of business trusts,
with each working slightly differently.
What Is a Business Trust?
Functionally, a business trust is quite similar to an individual or family trust.
It helps delegate control of assets to a trustee, who manages the trust
and its contents on behalf of the grantor. An individual trust
typically contains assets such as money or property, but a business
trust holds the rights to an individual’s stake or interest in a
business. As a result, a business trust can be the legal entity that
technically owns a business.
Business trusts can have one or
multiple beneficiaries. A business can be owned by multiple trusts and
entities or just a single one. They are primarily used to safeguard
against taxes and liability, as trusts tend to have different legal
protections than individuals. However, the specifics of these rules can
vary by state.
Note that trust lawyers typically charge around $500 per hour and the
outright cost to set up a business trust could be more than $5,000.
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