What are the Advantages of a Business Trust?

Home » Blog » What are the Advantages of a Business Trust?
Posted on: July 20, 2022 | by: Graber & Johnson Law Group, LLC
Trusts could be an incredibly powerful tool to help business owners protect their business and reach their wealth goals.

Business owners' heads are frequently filled with a steady stream of questions concerning day-to-day activities. Long-range planning questions about how to expand the business, set business priorities, identify vulnerabilities, etc., are lost in the flood of events requiring immediate action. However, business owners need to keep both details and the big picture in mind, according to a recent article “5 Ways Business Owners Can Use Trusts to Benefit Their Company” from Entrepreneur.

Three key questions for any business owner are: how can I minimize taxes, protect assets, and what kind of legacy do I want to leave with my business? All three questions can be answered with two words: estate planning. Within estate planning, trusts are a well-known tool to tackle and solve these three issues.

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.

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. 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.

It should be noted these types of trusts needs to be created with an experienced estate planning attorney to achieve the desired goals.

Assets in a trust maintain privacy. For companies and individuals who live in the public eye, placing assets in 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.

Litigation arising from sales of small businesses are 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.

Trusts are used in succession planning and should be created to align with business legacy objectives, whether the plan is to sell the company to outsiders, key employees or keep it in the family. Succession plans must be properly documented. This is done with the 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?

Minimizing taxes. Preparing 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.

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.

Reference: Entrepreneur (June 17, 2022) “5 Ways Business Owners Can Use Trusts to Benefit Their Company”

Read Our Blog

Estate Planning Articles

Our daily blog discusses issues pertaining to Estate Planning, Probate Administration, Special Needs Planning, and Elder Law / Medicaid.
Read Our Blog

Join Our eNewsletter

Join Our eNewsletter

Each month we send an e-newsletter covering issues of Estate Planning. We also have subscriptions available for our bi-monthly Elder Law e-newsletter and weekly Business Planning e-newsletter.
Subscribe Now!

Request an Initial Consultation

Schedule a Time to Meet Our Team Today

Graber & Johnson Law Group, LLC is devoted to serving clients in the highly specialized areas of estate and business planning. Book a time to meet the Graber & Johnson Law Group Kansas Estate Planning Law Firm.
Request a Consultation

Have Questions?

If you have a a question, a comment, or simply want to have a conversation and explore how we can help, we’d love to hear from you.
Request a Consultation Now

Office Locations

Manhattan Office

714 Poyntz Ave., Suite C
Manhattan, KS 66502

Directions

Hugoton Office

517 S. Main St.
Hugoton, KS 67951

Directions

Elkhart Office

701 Vilymaca St., PO Box 450
Elkhart, KS 67950

Directions

Hutchinson Office

517 E. 30th Ave., Suite B3
Hutchinson, KS 67502

Directions

Garden City Office

1501 E Fulton St.
Suite 3
Garden City, KS 67846

Directions

Norton Kansas Office (Appointment Only)

201 E Holme St.
Norton KS 67654

Manhattan Office

714 Poyntz Ave., Suite C
Manhattan, KS 66502

Get Directions
Hugoton Office

517 S. Main St.
Hugoton, KS 67951

Get Directions
Elkhart Office

701 Vilymaca St., PO Box 450
Elkhart, KS 67950

Get Directions
Hutchinson Office

517 E. 30th Ave., Suite B3
Hutchinson, KS 67502

Get Directions
Garden City Office

1501 E Fulton St.
Suite 3
Garden City, KS 67846

Get Directions
Norton Kansas Office (Appointment Only)

201 E Holme St.
Norton KS 67654

Get Directions
Integrity Marketing Solutions - Estate Planning Marketing
Powered by
selectcrosschevron-down