Trust
A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used in estate planning, business succession, and asset protection. The person who creates the trust is called the grantor or settlor.
Trust Definition
A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used in estate planning, business succession, and asset protection. The person who creates the trust is called the grantor or settlor.
Trust in Practice — Example
A business owner wants to ensure her company passes smoothly to her children if something happens to her. She creates a revocable living trust, naming herself as trustee during her lifetime and her eldest daughter as successor trustee. The trust holds her business ownership shares, real estate, and key bank accounts. If she becomes incapacitated or passes away, the daughter takes over management without going through probate court.
Why Trusts Matter for Your Business
Trusts aren't just for the wealthy — they're practical tools for any business owner thinking about continuity and protection. A well-structured trust can keep your business running without interruption during ownership transitions, avoiding the delays and costs of probate.
For businesses with multiple owners or family involvement, trusts create clear rules about who controls what and when. This prevents disputes and ensures the business doesn't stall because of legal uncertainty.
Trusts can also protect business assets from personal liability. Depending on the type of trust, assets held in trust may be shielded from creditors, lawsuits, or divorce settlements — giving business owners an extra layer of security.
How Trusts Work
| Trust Type | Key Feature | Revocable? |
|---|---|---|
| Revocable Living Trust | Grantor maintains control; avoids probate | Yes |
| Irrevocable Trust | Assets removed from grantor's estate; tax benefits | No |
| Business Trust | Holds business assets; provides continuity | Varies |
| Charitable Trust | Benefits a charity; tax deductions | No |
The grantor transfers assets into the trust, which becomes a separate legal entity. The trustee manages those assets according to the trust document's instructions. Beneficiaries receive distributions as specified — either on a schedule, at certain milestones, or at the trustee's discretion.
Trust vs Trust Account
A trust is the legal arrangement itself — the document, the entity, the rules. A trust account is simply a bank account opened in the name of a trust to hold its cash and process transactions. You need a trust before you can open a trust account.
FAQ
Q: Does my small business need a trust?
A: Not necessarily, but it's worth considering if you want to protect assets, plan for succession, or avoid probate. Talk to an estate planning attorney to see if a trust fits your situation.
Q: Can a trust own a business?
A: Yes. A trust can hold LLC membership interests, corporate shares, and other business ownership stakes. This is common in family business succession planning.
Related Terms
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