Business Trusts:
What Are They? Learn the 3 Types

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,036 reviews

Jump to Section

Need help with a legal contract?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Are Business Trusts?

Business trusts, also known as common law trusts, are legal instruments that give a trustee the authority to manage a beneficiary’s interest in a business. A business trust can be used as the legal entity that runs the business.

There are three types of business trusts, including grantor trusts, simple trusts, and complex trusts. Federal laws surrounding business trusts are also governed at the state level.

Business lawyers help parties draft the legal documents required to formalize the agreement. They will help you, your family, or business associates avoid making legal mistakes, now or in the future.

Here is an article about business trusts .

How Do Business Trusts Work?

Business trusts are formed when the assets, debts, properties, and profits of a business are handed over to a nominated and appointed trustee. The trustee manages these items during the operation of the business rather than for profit. All profits go to beneficiaries, which are people who receive income from all income-producing assets.

In addition to overseeing operations, the trustee must make decisions that are in the best interests of beneficiaries. Typically, business trusts are used for individuals who want to safeguard themselves from creditors, taxes, and lawsuits. Trustees also hold the business title, but beneficiaries receive proof of interest certificates.

Here is another article about how business trusts work .

Business Trusts Example

Examples of business trusts include:

  • Example #1: Delaware and Alaska have specific state laws related to trusts in that there are special tax and financial advantages for beneficiaries.
  • Example #2: A grantor trust allows someone to manage their business finances while providing for heirs.
  • Example #3: Simple trusts are good choices for parent corporations that do not have direct managerial authority over the business trust.
  • Example #4: For parent corporations that do not qualify for simple trusts, they can use complex trusts.
  • Example #5: You want to ensure that you can offer continuity in case you can no longer manage your business.

As you can see, business trusts play important roles in how we can run a business and protect our assets. Consider all of your options with insurance lawyers or trusts lawyers when setting up this type of entity. He or she can execute your documents under trust law in your state and provide legal advice along the way.

There are examples of business trusts in this article , too.

Types Of Business Trusts

There are three types of business trusts. The types of business trusts include a grantor trust, simple trust, and complex trust. Since the terms of each type carry specific legal implications, consider the differences to help you decide which type of instrument is right for you.

Meet some lawyers on our platform

Daniel R.

10 projects on CC
View Profile

Briana C.

60 projects on CC
View Profile

Zachary J.

53 projects on CC
View Profile

Matthew S.

2 projects on CC
View Profile

Grantor Trust

Grantor trusts are used for the retention of powers over the business trust. The trust creator is known as a grantor. This individual must pay taxes on the trust’s income.

Under a grantor trust, the grantor has complete control and authority over it, including beneficiary distributions.

Simple Trust

Another type of business trust is a simple trust. These types of trusts require the trustee to distribute earnings on trust assets. However, the principal amount must remain untouched.

In addition to these provisions, the trust is prohibited from making charitable contributions. The income for beneficiaries is generally taxable even if withdrawals are not made.

Complex Trust

Complex trusts are in staunch contrast to a simple trust. For a complex trust to exist, it must periodically perform several activities each year. Under a complex trust, funds can be distributed to charitable organizations and distribute total or partial amounts of the principal to beneficiaries.

The only caveat of a complex trust is that it must maintain some form of income. This income can include interest or allowing the principal balance to remain.

You can read more about business trusts here .

Advantages and Disadvantages of Business Trusts

There are several advantages and disadvantages associated with business trusts. You should carefully evaluate your opportunities and obligations before making a commitment to this type of entity since the disadvantages may not work for every situation. Review the advantages and disadvantages of business trusts before agreeing to the terms and conditions.

ContractsCounsel Business Trusts Chart Image

Image via Pexels by Pixabay

Advantages of Business Trusts

  • Advantage #1: There is a limited liability when appointing a corporate trustee
  • Advantage #2: The business trust structure provides greater privacy than a traditional structure
  • Advantage #3: The distributions to beneficiaries are generally flexible

Disadvantages of Business Trusts

  • Disadvantage #1: Business trusts are expensive to establish and maintain
  • Disadvantage #2: Legal compliance with business trusts is challenging to achieve
  • Disadvantage #3: Business trusts have a limited lifetime with a general cap of 99 years

The advantages and disadvantages of business trust vary widely. You should only form this type of entity if you have a comprehensive understanding of how they work. Regardless of your familiarity, trusts lawyers are prepared to help you navigate the complexities of business trusts.

Business Trusts Taxation

Business trusts are taxed similarly to corporations for intents and purposes related to federal income taxes and other state income tax regulations. Since a business trust is managed by trustees, they have a financial responsibility to act in the best interest of the beneficiaries. Profit and loss generated by the business are equally distributed among them.


Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Business Trusts vs. Family Trusts

Family trusts are used when a family’s assets are held to run a family business. They offer tax and financial advantages to individual family members and provide capital and income to benefit the entire family. Family trusts can also be used in conjunction with living trusts or a special needs trust.

Business trusts are set-up for individuals who may or may not be family members. They are also held for the benefit of a business or individual related to the business.

Costs To Set Up Business Trusts

The costs to set-up business trusts will vary according to your situation. Trust lawyers can charge between $250 and $500 an hour and charge a minimum of $1,000 to create a simple business trust. However, the cost of setting up a business trust could be as high as $5,000 or more.

Factors that may increase your costs to set up business trusts include:

  • You have a complicated business structure or several assets
  • Numerous beneficiaries are involved
  • Planning for specific beneficiaries is more complicated than traditional matters
  • Needing other types of trusts to address personal needs
  • Writing other types of contracts to address business needs
  • Requiring additional legal advice for related issues
  • Requesting ongoing business trust management
  • Representing you in hearings or civil court trials

It is also possible to hire trusts lawyers to act as the trustee instead of naming the business or yourself. Trusts lawyers can manage business trusts routinely, but this alternative will significantly increase their costs.

However, it is possible to help you manage the costs of business trusts by working with trusts lawyers online . They can also help you draft the document and update it as you deem necessary. This option can significantly decrease your costs.

Need Trusts Lawyers?

If you need help establishing and setting up a business trust, consider posting your project for free to ContractsCounsel and connect with trusts lawyers in your s

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Michael W. on ContractsCounsel
View Michael
5.0 (2)
Member Since:
July 13, 2020

Michael W.

Attorney
Free Consultation
Get Free Proposal
Columbia, MD
12 Yrs Experience
Licensed in MD
Georgetown University Law Center

Graduate of Georgetown Law (J.D. and LL.M in Taxation) Injury Claims Adjuster before law school for top insurer Eight plus years of legal experience Past roles: Associate at premier boutique law firm in the DC metro area Policy Associate at a large academic and research institution Solo Practice Areas of Expertise: Contracts Business Formation Trusts and Estates Demand Letters Entertainment Transactions

Mark D. on ContractsCounsel
View Mark
5.0 (9)
Member Since:
August 27, 2020

Mark D.

Attorney
Free Consultation
Get Free Proposal
San Diego, CA
13 Yrs Experience
Licensed in CA
Boston College Law School

California-based small business attorney handling matters related to securities, mergers & acquisitions, corporate governance, and other business transactions.

Agnes M. on ContractsCounsel
View Agnes
5.0 (6)
Member Since:
July 13, 2020

Agnes M.

Managing Attorney
Free Consultation
Get Free Proposal
Florida
13 Yrs Experience
Licensed in FL, NJ, PA
Florida Coastal School of Law

Agnes Mombrun Geter is the Founder and Managing Attorney of Mombrun Law, PLLC. She is an experienced attorney and is a member of the Florida Bar, New Jersey Bar, and the Pennsylvania Bar. The firm's practice focuses on Estate Planning, Business Law, and Debt Settlement including IRS Debt Relief. The firm's goal is to simplify the law and provide clients with the confidence and information necessary to make their decisions. The firm also provides project-based legal services to other attorneys and law firms, along with assisting as personal counsel and local counsel on legal matters.

Julian H. on ContractsCounsel
View Julian
5.0 (1)
Member Since:
July 14, 2020

Julian H.

Business Attorney
Free Consultation
Get Free Proposal
Washington, DC
21 Yrs Experience
Licensed in MD
Howard University School of Law

I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.

Richard N. on ContractsCounsel
View Richard
4.9 (41)
Member Since:
July 9, 2020

Richard N.

Managing Member
Free Consultation
Get Free Proposal
Princeton, NJ
40 Yrs Experience
Licensed in NJ
New York Law School

I have been practicing law for 35 years. In addition to my law degree, I hold an MBA. I've created six companies, currently act as outside counsel to another 12, and have been an advisor to more than 500 startups and entrepreneurs.

Donya G. on ContractsCounsel
View Donya
4.9 (40)
Member Since:
July 10, 2020

Donya G.

Contract, E-Commerce Attorney & Dispute Resolution Specialists
Free Consultation
Get Free Proposal
United States
23 Yrs Experience
Licensed in CT, NY
Pace University School of Law

I am a licensed and active NY Contracts Attorney, with over 20 years of diverse legal and business experience. I specialize in reviewing, drafting and negotiating commercial agreements. My practice focuses on working with small business clients as well as clients from international brokerage firms on acquisitions, especially in the Ecommerce space; drafting, negotiating, reviewing and advising on business agreements; ; breach of contract issues, contract disputes and arbitration. I am licensed to practice in New York and Connecticut, and am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. This entails reviewing, updating and drafting contracts such as employments agreements, asset purchase agreements, master services agreements, operating agreements and a variety of business and commercial contracts. Additionally, I assist clients with business strategies, contract disputes and arbitration. My diverse experience allows me to give my clients a well-rounded approach to the issues they face. I have been at top AML law firms; a Vice President at an Investment Bank, a Civil Court Arbitrator presiding over cases in contract law, commercial law, a Hearing Officer, presiding over cases and rendering written decisions, and a Judicial Clerk to a Civil Court Judge. It would be a privilege to assist you and your business with my services.

Carlos C. on ContractsCounsel
View Carlos
Member Since:
July 11, 2020

Carlos C.

Attorney-at-law and Certified Public Accountant
Free Consultation
Get Free Proposal
Atlanta, GA
27 Yrs Experience
Licensed in DC, FL, GA
Inter American University

Carlos Colón-Machargo is a fully bilingual (English-Spanish) attorney-at-law and Certified Public Accountant (CPA) with over twenty years of experience. His major areas of practice include labor and employment law; business law; corporate, contract and tax law; and estate planning. He is currently admitted to practice law in Georgia, Florida, the District of Columbia and Puerto Rico and currently licensed as a CPA in Florida. He received a Master of Laws from the Georgetown University Law Center in 1997, where he concentrated in Labor and Employment Law (LL. M. in Labor and Employment Law) and a Juris Doctor, cum laude, from the Inter American University.

Matthew F. on ContractsCounsel
View Matthew
Member Since:
July 13, 2020

Matthew F.

Attorney
Free Consultation
Get Free Proposal
Coral Springs, FL
20 Yrs Experience
Licensed in FL
UF Levin College of Law

As a business law attorney serving Coral Springs, Parkland, and Broward County, FL, Matthew has been recognized as “AV” rated, which is the highest rating an attorney can achieve through Martindale’s Peer Review system. Year after year Matthew is listed in the “Legal Leaders” publication as a top-rated attorney in South Florida in the areas of litigation, commercial litigation, and real estate. Matthew is also a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development.

John B. on ContractsCounsel
View John
Member Since:
July 13, 2020

John B.

Managing Partner
Free Consultation
Get Free Proposal
New York, NY
8 Yrs Experience
Licensed in NJ, NY
New York Law School

John Benemerito is the Founder and Managing Partner of Benemerito Attorneys at Law. Admitted to practice in New York and New Jersey, John represents small business owners and startups in the areas of Business and Securities Law. John received his Bachelors Degree at John Jay College of Criminal Justice where he majored in Criminal Justice. Afterwards, he attended New York Law School where he focused his studies on Corporate and Securities Law. John comes from a family of entrepreneurs. From as far back as he can remember he was always involved in his family’s numerous businesses. At the age of fifteen, John entered into a new business venture with his father and managed to grow and maintain that business through high school, college and law school.John is currently a co founder in over five different businesses. After law school, John decided that he wanted to help people like himself. He opened his own law practice and began working primarily with small business owners until he was introduced into the startup world. Ever since that time, John has worked with hundreds of startups and thousands of entrepreneurs from all different backgrounds in helping them achieve their goals. Having been an entrepreneur his entire life, John understands what it takes to create and maintain a successful business. He enjoys sitting down and working with his clients in figuring out each of their unique challenges.

Dillon N. on ContractsCounsel
View Dillon
Member Since:
July 13, 2020

Dillon N.

Associate Attorney
Free Consultation
Get Free Proposal
Chicago, IL
8 Yrs Experience
Licensed in IL, KY
University of Kentucky College of Law

I joined Enterprise Law Group, LLP as an Associate in March 2020. My practice has involved a wide range of legal matters from commercial real estate, finance and international business transactions to litigation matters including commercial disputes, personal injury and medical malpractice. Proficient in Spanish, I graduated from the University of Kentucky College of Law, the Patterson School of Diplomacy and International Commerce, and the University of Southern California. Prior to my legal career, I sought diverse professional experiences. After graduating from college, I orchestrated my own volunteering experience in southern Peru with a small non-profit organization. Later I gained valuable professional experience as part of a U.S. Senate campaign, and after that I joined the public policy team at Greater Louisville, Inc., Louisville's Chamber of Commerce affiliate. Prior to law school, I embarked on a month long excursion with the Northern Outdoor Leadership School in Alaska, which gave me a new found appreciation for sustainability.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call