Question

IV. Trusts - For the company TARGET

A. Draw a conclusion about the purpose for the company’s trust based on the research of your company.

B. Why would a small business owner want to set up a trust, and how could it be used for estate planning purposes?

C. Evaluate the similarities and differences between trusts and corporations. In an attempt to protect income, which would be most suitable for a company?

Answer 1

Answer (A)

Trust Company means a legal entity that acts as fiduciary, agent or trustee on behalf of a person or business entity for the purpose of administration, management and the eventual transfer of assets to a beneficial party.

A trust company or trust department is usually a division or an associated company of a commercial bank. Trusts and similar arrangements managed for eventual transfer are managed for profit, which may be taken out of the assets on an annual basis or upon transfer to the beneficial third party. There are often tax advantages associated with using trusts to transfer ownership of assets, but any trust arrangement should be made through qualified professionals that are capable of giving tax and legal advice.

Answer (B)

A small business wants to set up a trust due to following benefits:

• Reduced liability especially if corporate trustee.
• Assets are protected.
• Flexibility of asset and income distribution.
• Control of your wealth
• Protection of your legacy
• Privacy and probate savings

Since trusts usually avoid probate, your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using a will. Additionally, if it is an irrevocable trust, it may not be considered part of the taxable estate, so fewer taxes may be due upon your death.

Assets in a trust may also be able to pass outside of probate, saving time, court fees, and potentially reducing estate taxes as well.

Answer (C)

Trust

A trust is a firm or an organization that is characterized by its trustees who carry out fiduciary duties, or act as administrators or agents of financial assets of another business or individual. A trust has a responsibility to supervise the management of a grantor or asset. A trust is usually formed when a grantor (the creator of the trust) feels that this organization can do a better job of managing an asset than an individual person.

Company

A company, on the other hand, represents a combination of assets and individuals with a common goal of earning profits to increase the wealth of shareholders. It is a separate legal entity, and is in the form of corporate registered under the companies act. A company business doesn’t include a partnership business or other incorporated group of persons.

Ownership of Assets

A company usually owns the tangible and the intangible assets, such as patents, copyrights, buildings, lands, etc., and can also directly own the stocks of other companies. It entitles the company to a percentage share in the tangibles and intangible assets as well as the profit of those companies on the basis of the amount of stock owned.

A trust also has its own tangibles and non-intangible asset, but instead of having the ownership of additional stocks, it owns the assets that are placed by the grantors in a trust.

Control

A company can control the assets of other entities, as long as it holds the majority stocks of those companies, and has majority voting rights. Whereas, a trust can only manage the assets in accordance with the trust deed terms. Even in case of a revocable trust where the terms of the trust deed can be changed and assets are titled to a trust, it still cannot control the assets, and the control lies with the grantor of a trust. Moreover, if trust is dissolved by a grantor, a trust loses the right to manage the assets.

In case of irrevocable trust where the terms of a deed cannot be changed, grantor loses the control of assets, but the trust still cannot have full control over the assets, because it must act with care and loyalty on behalf of beneficiaries as its fiduciary duty. Therefore, it retains only limited control of assets.

Purpose

Companies are usually incorporated by those individuals who understand the basics of business, the relationship between shareholders, company ownership, voting rights and profit potentials. The sole purpose of companies is to manage the business operations and increase the profit, and a portion of these profits is reinvested into the business for its development. Therefore, you can say that the proceeds of a company become the spending of a company with the motive to take it to the next level.

A trust is formed with the aim of providing protection to assets and other properties of a grantor. The responsibilities of a trust include record keeping, management of investment or account, pay medical expenses, bills, and charitable gifts, etc.

Due to Income protection perspective, trust is a better option as it avoids state income or capital gains tax.