Finding ways to manage finances for complex entities such as businesses and corporations is very important. When managed the right way, it can help ensure the value of the business or investment and reduce tax liability. One of the ways that this can be done is by structuring a company and ownership through a business trust.

What Are Business Trusts?

When wondering what do business trusts do, the trust is essentially an entity that gives a trustee the ability to run a business or underlying investment. The business trust can then be used to be the direct owner of an underlying business. This is a common way to structure a business's ownership and appoint legal control of investment decisions.

Benefits of Using Business Trusts

As business trusts can be complicated legal structures, it is important to understand how do business trusts work to understand the benefits of such a structure. One of the advantages of having a trust established is that it can help ensure a certain level of income is paid out to beneficiaries of a trust. When a business is owned by a trust, the underlying agreements will determine how much money can be paid out each year. This can ensure an agreement is in place, which can prevent litigation and disagreements in the future.

The use of business trusts can also help to manage taxes. With different tax rates for both businesses and individuals, finding a way to reduce your liability each year is very important and can help preserve more capital. With the use of a business trust, you can structure payments to reduce your collective tax liability. 

What Are the Different Types of Business Trusts?

When looking for business trusts, it is important to remember that there are different options to consider. For those wondering what the different types of business trusts are, there are three particular types of trusts to understand.

Grantor Trust

A grantor trust is a popular type of trust. With this type, the creator of the trust is called a grantor and has complete control over the trust. This includes distributions paid out and the payment of income taxes.

Simple Trust

When wondering, "Are there different types of business trusts?", a simple trust is another common type of option. With a simple trust, a set amount of principal will be in place, which cannot be touched until a certain date. Until then, the funds in the trust can accrue interest or income, which can be distributed to beneficiaries.

Complex Trust

A complex trust differs from a simple trust because the principal amount can be distributed to shareholders and beneficiaries. However, this form of trust must earn some form of income, which can help maintain a certain level of principal within the entity.   

Ultimately, business trusts can be a great tool to own a business or investment. They can be used to manage taxes, ensure payments to beneficiaries, and organize your business. It is important to understand the different options available when selecting a new trust.