Starting a business and sustaining it for years is no easy feat. You would ordinarily want to pass the business to your heirs. There are different situations that might, however, see you lose your businesses and personal assets.
Setting your business as a limited liability company (LLC) or a corporation is the leading choice. These might offer you some personal protection, but it will not protect your business’ assets as much. Setting up a trust might be your best choice for the protection of your company’s assets.
A business attorney in Salt Lake City will, however, recommend combining the trust with your business rather than setting a separate trust to guarantee utmost protection. The trust will also allow flexible income and asset distribution for your business, tax breaks, and reduce your liabilities.
Here are some of the business trust options you have.
Grantor Retained Annuity Trust
This is used by S corporations to transfer their assets without being taxed when the business owner dies. The trust will provide income using an annuity to the trust’s beneficiary who is, in most cases, its creator. This annuity can be a fixed monetary amount or the trust’s percentage.
A grantor annuity is an irrevocable trust, and you should be cautious when choosing it to guarantee it generates enough income. Some of the common items in this trust include mutual funds, stocks, bonds and shares, and other business items that appreciate.
Life Insurance Trust
This is your best pick if your company’s worth surpasses your estate taxation’s limit, you do not own many liquid assets, and when you want to pass the company to a family member. You can opt for a life insurance policy, but if you place this into your life insurance trust, it is tax exempt.
The two caveats in life insurance trusts are that the trust should exist at least three years before your death, and you cannot be a trustee.
Charitable Trust
This is ideal if you aim to leave some of your company’s assets to a charity and friends or family members. The two types of charitable trusts include lead and remainder trusts. Both are irrevocable trusts. You will add assets to a lead trust and specify the amount a charity receives over a specified period.
The remainder will be distributed to the other beneficiaries after this period lapses. In a charitable remainder trust, a recipient will get income from the trust for a specified period after which the charity receives the rest.
Simple Trust
Here, a parent company will not retain the management of its trust. A simple trust distributes the profits it will amass within a given tax period to its parent company. Unlike other business trusts, it will not save money nor pass it on to charities.
The types of trusts above are complex to administer, dissolve, establish, or change. You can thus not afford to handle them as you would personal trusts since they might be the primary cause of losses and legal penalties for your company. Get the best business lawyer to help you establish and manage your trusts to guarantee they work for rather than against your bottom line.