What Are the Different Types of Business Trusts?

Business trusts are a type of company formation individuals use to protect assets that produce goods and services. In most cases, setting up a business trust is a technical legal matter that must follow national and state laws. Different types of business trusts exist, though only a few broad categories carry any legal weight; these categories include business, asset, and land trusts. When an individual decides to start a trust for business purposes, he or she must be careful to follow all applicable tax law as well as any legal issues. A tax accountant may also be helpful in addition to the attorney setting up the trust.

Standard business trusts mean that the entity will be the owner of all or a majority of stock from a corporation. In most cases, a company is most likely a corporation or S-corporation, even though it is protected by a business trust. This setup can work for many types of businesses or other organizations, from nonprofits to for-profit companies to a foreign trust. The specifics for these business trusts must be outlined during the initial formation. It may be difficult to change or alter later in a way that significantly changes the trust and the business within the trust.

An asset trust may only hold specific items related to a company, which may be a corporation, S-corporation, partnership, or sole proprietorship. The purpose for an asset trust is to shield large equipment, vehicles, or buildings for the business. Protection offered through business trusts designed for holding assets often creates tax advantages as well. Again, consulting both legal and accounting counsel is necessary in order to find the best trust available for this purpose. Placing small or current assets into the asset trust may not be as beneficial as placing large assets into the trust as the current assets move more frequently through the company.

A land trust is similar to an asset trust, though significant differences may exist between its uses. Here, only land can go into the trust; the company most likely needs to own the land or have principal rights to it. Again, separating land from a business shields the corporation from outside legal attacks. For example, while an individual may be able to sue a business for inappropriate actions, the land held in the trust may be safe from the lawsuit. This allows the company to retain some assets in case of major legal problems.