How to open a trust for a business?

Opening a business trust could be one efficient way to manage business assets, plan their succession, and provide for business continuity in the event of an owner's death or incapacity. The major steps toward the creation of a trust for a business are the following:

1. Determine the Purpose of the Trust: One should directly define the purpose for which a business trust is opened. A business trust can be opened for estate planning, asset protection, or even to manage one's business in cases when one does not want sons and daughters to divide up the goods, typically for future generations. It is very important that there is a definition as to what the goals are before proceeding with the trust.
2. Select Type of Trust: Depending on the purpose, there are several trusts that can be utilized for business. For estate planning purposes, a revocable living trust may suffice as it allows full control by the owner of the business but transfers the business later to beneficiaries named upon his or her death. On the other hand, an irrevocable trust can provide asset protection and favourable taxation, but in that case, a business owner loses all control over the assets he puts into the trust.
3. Appoint the trustee: This means identifying the person or organization that shall be responsible for managing the assets of the trust or seeing that the set-out wishes are accomplished. It may be an individual whom one trusts, a professional adviser, or a corporate trustee. Choose a trustee who has experience in the management of business assets and is in a better position to understand your particular business.
4. Draft the agreement of trust: A trust agreement is basically a legal document setting out all the terms and conditions of the trust. This document stipulates the terms for managing the running of the business, how the income or profits will be divided, and what happens to the business assets once the owner dies or is unable to perform his duties. It should be drafted, taking the assistance of an attorney, in such a manner that it shall be legally sound and achieve the goals as laid down in the trust.
5. Transfer Business Assets into the Trust: Once the business owner has created the trust, ownership of the business assets, such as shares of a corporation, real estate, or intellectual property, must be transferred into the trust. In many instances, this will require legal filings, including filing updated business records or titles reflecting the trust as the new owner.
6. Tax and legal: Finally, with the help of a tax consultant or attorney, verify that the trust is set up to meet all tax laws and any pertinent business regulations. A transfer of assets to a trust may have some tax consequences, and continuing tax obligations exist depending on how the trust and business are set up.

Essentially, establishing a trust for the business involves detailed planning, determination of the type of trust needed, selection of trustees, writing of a trust agreement, transfer of assets, and taking into consideration various legal and tax issues. This is best dealt with through professional advice so that the trust can be set up correctly and within the legal ambit.