Small business trust

What are the benefits of a trust for a small business owner? What is an example of a business trust? Electing small business trusts (ESBT) are frequently used as an estate planning tool. These trusts allow holders of subchapter S stock to transfer ownership and income to multiple beneficiaries. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.

Business trusts can help families continue small businesses without having to sell. Small business owners spend a lifetime building up their business, but what happens when it comes time for that business to be passed on? In a simple worl the only assets owned by trusts would be publicly traded stocks, bonds, and cash. But this isnt a simple worl and many grantors have less traditional sorts of property that they want to transfer into their trusts.

One of these assets is often shares the grantor owns in a small business corporation, commonly known as a Subchapter S corporation. See full list on dummies. In exchange for a significant tax break over larger C corporations, Subchapter S corporations are governed by rules limiting the number of shareholders (no more than 75), and who, exactly, may own shares. Because trusts, in general, dont fall under the list of approved shareholders, if a trust wants to become a qualified shareholder, it must be certain to pass all the income out to its income beneficiary.

Welcome to the world of Qualified Subchapter S Trusts, or QSSTs. In a Subchapter S corporation, the shareholders (not the corporation) pay the income tax on income the corporation earns. If only it were as easy as knowing that the trust and the beneficiary are qualified S shareholders. Unfortunately, you have to let the IRS know. In an ESBT, the trustee (not the beneficiary) makes the election, notifying the IRS where the corporation files its tax return of the name, address, and TIN for each trust beneficiary.

ESBTs are tricky beasts best not attempted on your own, at least while youre getting going. Making a mistake here jeopardizes not only the status of the trusts election but the corporations S election. And if you think messing up a trust tax return is ba just wait until you have a bunch of angry former S shareholders hunting you down because they now have to pay more taxes. The beneficiaries actually have very limited liability in the profits of the business. People will engage in a business trust for a variety of reasons.

It may be used to safeguard certain assets from a lawsuit, creditors, or taxation. An unincorporated business organization created by a legal document, a declaration of trust, and used in place of a corporation or partnership for the transaction of various kinds of business with limited liability. The use of a business trust, also called a Massachusetts trust or a common-law trust, originated years ago to circumvent restrictions imposed upon corporate acquisition and development of real estate while achieving the limited liability aspect of a corporation.

The trustee is legally liable for the debts of the trust and may use its assets to meet those debts. A trust is not a separate legal entity. Move your business forward with SunTrust small business banking.

However, if there is a shortfall the trustee is responsible for the difference. Instantly Find and Download Legal Forms Drafted by Attorneys for Your State. Start by arranging for a professional valuation of your business so you can determine your estate’s tax burden. While a living trust doesn’t exempt you from federal estate taxes, it does tend to minimize state inheritance taxes.

Additionally, an estate planning attorney can help you reduce your tax burden by gifting stock and investing in life insurance to cover any debts. An improperly planned estate can mean that there are not enough monies to satisfy the personal debts of the business owner. S’s, ESBT’s, NRA’s – AOK?

Extend your legacy with business succession planning and trust services from First PREMIER Bank. The use of a business trust , also called a Massachusetts trust or a common-law trust , originated years ago to circumvent restrictions imposed upon corporate acquisition and development of real estate while achieving the limited liability aspect of a corporation. Keep your small business running smoothly and get an edge on your competitors with small business banking accounts and services from BBT.

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