Trust Legal Structure

What is the trust legal structure?

A trust is where the assets (in this case, assets of the business) are held by the trustee who manages those assets for the benefit of the beneficiaries.

As a general rule, the trustee cannot benefit from the property but is entitled to be reimbursed for their expenses. They cannot sell the property or keep them for their own use, unless the trust deed specifically provides for it.

There are two types of trust, unit trusts and discretionary trusts. In Unit trusts the beneficiaries hold 'units' in the trust. Each unit confers a specified level of interest in the property and income of the trust.

Discretionary trusts are trusts where the interest of the beneficiary is not fixed, and the trustee can distribute the income of the trust at his or her discretion.

The most commonly used trust for businesses is the discretionary trust. Under a trust structure the founders of the business retain control over the business, as they usually appoint the trustee and will be the beneficiaries of the trust. Liability of the beneficiaries is limited to the assets owned by the trust.

The principle advantage of selecting this small business structure and operating as a discretionary trust is the ability to split the income across the beneficiaries, which can offer tax advantages.

The disadvantages are that there is a higher degree of compliance costs due to increased scrutiny (compared to sole traders), and the assets of the business are tied up in a complex legal arrangement, making it difficult to move assets in and out of the trust. Set up costs for a trust can also be significant.

What are your other choices

If you find that this legal structure is not quite right for you and your business, you may have to consider one of the following alternatives:

• Sole Trader Legal Structure
• Company Legal Structure
• Partnership Legal Structure

	Enter your search terms Submit search form
	Web www.how-to-start-a-small-business.com

Return to top of Trust Legal Structure

Return to top of Small Business Legal Structure

Home | Privacy Policy | Contact