Trusts
Along with a plethora of other attributes Trusts offer significant tax savings opportunities for your businesses. For instance, income generated by a Trust can often be taxed at lower rates than income earned directly by the business owner or shareholders. A Trust also allows income and capital gains generated by investment in a Trust structure to be distributed without additional income tax obligations. This makes a Trust an attractive option for those looking to minimize their overall tax burden while still making profits from their investments.
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 Attorneys 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.
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4 Reasons to Use Trusts in Business Succession Planning
When people think about trusts, what first comes to mind are wealthy families, the elderly, and the disabled. And yes, they are great for helping individuals in those circumstances. But what many don’t realize are the additional benefits family-owned, entrepreneurs and small to large closely held business owners have when using a trust.
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1. Trusts Develop Control
Closely held businesses find trusts useful for owning and controlling their company. The contract appoints a person or entity (the trustee) to manage the property. Bound by a fiduciary duty, the trustee exercises ownership and control of the business— all actions done by the trustee must benefit all trust beneficiaries. Trusts enable several co-trustees and multiple beneficiaries to benefit from the same assets, making it ideal for holding an asset long-term.
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2. Trusts Ensure Seamless Leadership
Sometimes the unforeseen happens, and owners or key personnel pass away unexpectedly. Trusts enable trustees to appoint a successor, ensuring seamless leadership. It can keep the business intact and functioning, and the trust instrument can be drafted flexibly to anticipate and respond to changing circumstances. No matter the situation, trusts help prepare everyone for their roles.
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3. Trusts Give Shareholders a Voice
Businesses use trusts to give everyone a say. They can be used as an instrument to require unanimous consent or a majority vote of the trustees for action— an ability limited by activities such as selling stock. Some businesses also appoint an outside tie-breaker voter if the trustees cannot reach a consensus. This tool is terrific because businesses can achieve mutual control of the company at the shareholder level for the collective benefit of all the beneficiaries.
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4. Trusts Help Avoid Conflict
Trusts address some of the fundamental tensions and sources of potential conflict. When you name a trustee, that person must follow the trust document language. The opinions or desires of others should not matter. The trustee is required to run the business in the best interest of all beneficiaries.
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Of course, no perfect solution exists in a vacuum, and the suitability of any given planning strategy must be considered in the context of the actual situation. However, the trust can provide significantly more protection for the interests of the beneficiaries and both flexibility and accountability in the continued management of the business.
Leverage Your Trust
Putting business assets into a trust not only protects them, but it gives you leverage in collaboration, partnering and funding negotiations.
Real Estate Investment Trust (REIT)
A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing properties. By law, 90% of an REIT’s profits must be distributed as dividends to shareholders.1
Here, we take a look at REITs, their characteristics, and how to evaluate an REIT.
KEY UNDERSTANDINGS
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Real estate investment trusts (REITs) are required to pay out at least 90% of income as shareholder dividends.
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Book value ratios are useless for REITs. Instead, calculations such as net asset value are better metrics.
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Top-down and bottom-up analyses should be used for REITs. Top-down factors include population and job growth. Bottom-up aspects include rental income and funds from operations.
What Qualifies as an REIT?
Most REITs lease space and collect rents, then distribute that income as dividends to shareholders. Mortgage REITs (also called mREITs) don’t own real estate; instead, they finance real estate. These REITs earn income from the interest on their investments, which include mortgages, mortgage-backed securities (MBSs), and other related assets.