How can a trust benefit your business?
When it comes to structuring and managing your business or company, setting up or entering into a trust can be an extremely effective way of protecting your assets and succeeding in the market – but what exactly are trusts and how can they be used to benefit your business?
What is a trust and can it be used in business? – A trust is a type of business structure in which the property or assets of a company are controlled or held by another party. A trust usually consists of three parties: a trustee (a person or entity responsible for managing the assets in line with the terms of the agreement), a beneficiary (the person who grants access to the trustee and who benefits from the trust) and a settlor (a third party who provides an initial settlement sum and legislative signing). Trusts are often used in business as a way to protect your assets and reduce the risk of monetary loss due to factors like poor investments, debt and mismanagement of funds.
Common types of trusts for businesses – If you’re considering moving a portion of your assets into a trust, ensure that you consult with trust solicitors to gauge a better understanding of whether or not it’s a good idea for your business, and which type of trust could be the best for you. The most common trusts used by businesses in the UK include:
- Discretionary Trusts – As part of a discretionary trust agreement, the trustee will have total discretion over trust distributions. This means that the trustee themself can decide when a beneficiary is due for a payout of income, unless otherwise indicated in the trust deed. This kind of trust is often favoured by small businesses, startups and family-run companies.
- Unit Trusts – If you’re a beneficiary in a unit trust, you’ll receive distributions according to how many units of income, property or assets you own. Similarly to stocks and shares, the amount you receive from a unit trust depends on how much you’ve put in.
- Self-settled/Spendthrift Trust – This kind of trust is usually devised or created by an individual in order to protect their assets – as part of a self-settled trust, the grantor or trustee may also be a beneficiary.
Why should business owners consider moving assets into a trust?
The many benefits of using a trust to manage sections of your business include enhanced protection for your assets, easier tax planning and the avoidance of financial problems (such as creditor’s fees or bankruptcy) that could be potentially damaging to your assets or estate. Trustees are also awarded a higher degree of privacy when it comes to the public disclosure of financial information. There’s also no limit to how many investors can buy into a trust, which means you could see investment in your business grow significantly.