Thinking about setting up a family trust for business purposes? That’s a wise thing to do. If you’re a business owner, this legal structure can offer many perks. A family trust can allow you to save on taxes, help safeguard your assets and plan for the future. In this article, we’ll dive into all the reasons why the legal structure can be beneficial for business owners and how to make the most of it.
What exactly is a family trust?
To better understand how a family trust functions, you can think of it as a team with players (trustees) and fans (beneficiaries). The players control the team’s assets, but the fans are those who benefit from the team’s success.
Most people use the legal structure to protect their family’s assets or business. When you have a family trust, you can have peace of mind your loved ones will be taken care of even after you’re gone. However, note that a trust isn’t a legal entity. It’s a mechanism of settling property.
Here are a few examples of how family trusts can be valuable for business owners.
They can help with tax savings
One of the main reasons family trusts are helpful for business owners is the potential for tax savings. By transferring your assets into a family trust, you can take advantage of lower tax rates on income and capital gains.
For example, if a business owner transfers ownership of their company into the legal structure, the trust can sell the business and pay capital gains tax at a lower rate than the individual would have to. This, of course, allows you to save a significant amount of money.
They can protect your assets
By design, a family trust operates in a way that its beneficiaries do not have direct ownership of the trust’s assets. Hence, creditors cannot lay a claim on them. This means that even in the direst of situations where the beneficiary may face bankruptcy, they can still hold on to their interest in the trust’s assets, securing its value.
They are useful in succession planning
If you would like to ensure your business will be managed and operated even after you have passed away, a family trust is the best solution. By transferring your company’s ownership into it, you can preserve the legacy of your business and ensure the transition is smooth.
Furthermore, family trusts also come with the added benefit of minimizing estate administration costs. This means you can save money that would have otherwise been spent on legal fees and other expenses, allowing more of your hard-earned wealth to be passed on to your loved ones.
They are beneficial in estate planning
As a business owner, you might be interested in passing your wealth on to future generations. One of the safest ways to ensure your family’s financial stability even after you’re gone is using a family trust. When you transfer your assets into it, you can be guaranteed they will be distributed according to your wishes. That means you can avoid potential family drama and disagreements.
If you want to secure your and your loved ones’ financial future, a family trust can be an excellent solution. Not only does it offer several advantages – like lower taxes and effective estate planning –it can also ensure your business will continue to thrive under your family’s management even after you’re gone. However, to fully understand how a family trust can benefit you, it’s best to consult with a lawyer.
Our team at Mikhailitchenko Law Office has years of experience drafting and reviewing family trusts. If you’re curious to learn more about the process, you can contact us here.