Are you searching for a new way to safeguard assets? Those complicated protection strategies are numbing. So let’s look back a few decades pre-internet when we all had financial privacy.
It was difficult to lookup business and real estate records. You had to visit the Recorder’s office or write a letter to the Secretary of State office. You had to know exactly what you were looking for. It was tedious.
In our current internet era public records search, the Secretary of State’s website and the County Recorder’s property filings are all online. Anyone can now easily and quickly piece together your asset holdings.
People think Corporations and LLCs work. Not anymore. Even those states who offer privacy are subject to federal laws. You still leave a breadcrumb trail of data.
Privacy & Anonymity
There’s only one modern solution to keeping your affairs private and confidential. The best way to keep your valuable assets OFF the public records radar screen (internet) is to use a business trust.
Possibilities are unlimited – read on how they can apply to you.
- Inheritance Protection
- Import Export Nominee
- Financial Settlements
- Inventors & Patents
- Self-Directed IRA ROTH
- Strategic Banking or Brokerage
- Business Identity Theft
- Cannabis Growers
- House Flippers
- Trust Deed Investors
- Property Management
- INC/LLC Alternative
- INC/LLC Combo
- Prenup Agreement Alternative
- Offshore Companies and Banking
- Bearer Shares Investing
- Real Property Holdings
Benefits for You
A Business Trust combines the best features of a corporation, LLC and partnership all in one. Yet it’s less hassle – often no secretary of state registration, no fees, no franchise taxes, no resident agent, and no state permission. It can operate in California or any of 49 states nationwide. And your Business Trust can be anonymous to outsiders.
Many successful business owners are looking for a fresh alternative to government sponsorship. It’s exactly what happened to us. After years of operating corporations and LLCs we found the Business Trust solution. It relieved us of many hassles to organize a low profile investment management company. You save time and money too.
Low Profile Privacy
Unlike a Corporation, LLC, or Limited Partnership – a Business Trust is generally off the public radar screen. It has no secretary of state filing requirements in many states. If setup correctly it rarely appears in any public online database. This could mean your business assets, and ownership details are invisible to outsiders. They’re “unlisted” organizations.
Read the European or Asian WSJ, FT or Reuters financial news and you’ll see Business Trusts used extensively in Singapore, the United Kingdom, Australia, South Africa, and India. As these are often registered public investment companies they apply a different purpose to their mission. However, the fundamental trust/trustee/shareholder architecture is essentially identical to those who prefer a privacy purpose.
A Business Trust is recognized as wholly, valid and legal form of business organization, with the right to do business, hold and convey real estate, make contracts and enforce its rights in court.
Personal versus Commercial Trusts
Living Trusts are designed for estate planning. They fit within the category of “Personal Trusts” whose purpose is to conserve and distribute wealth. Business Trusts are designed for doing business. They fit within the category of “Commercial Trusts” whose purpose is to operate a for profit business.
United States History
Long ago the Massachusetts Bay Colony Corporation was afforded a government monopoly. Political cronies only. A law was passed that prevented other corporations from holding property and engaging in business. Without liability protection of a corporation, investors were unwilling to risk debtors’ prison and their wealth on a single venture.
Business Trusts originated in England several centuries ago. They were called Unincorporated Joint Stock Companies in late 1680. Subsequently, American investors imported this concept for business operations because of limited liability and protection for investors also known as ‘entity shielding.”
We see the state of Massachusetts as the foundation for business trusts in the United States. Originally it was used by electric railway operators as well as gas utility companies. The State Supreme Judicial Court in 1890 recognized the business trust as a legal entity.
Rockefeller’s infamous Standard Oil was a maze of business trusts. His vertical integration was savvy but later a problem. If Corporations were such a great deal why did Rockefeller & Carnegie prefer a Trust?
The name “Sherman Anti-Trust Act” of 1890 is misleading. More accurately it should read ‘Anti-Competition Act’ because it attacked monopolies, cartels and trusts. Later on the “Clayton Antitrust Act” of 1914 is also a misleading term. It sought to prevent anti-competitive practices such as price fixing. In both cases the underlying issue was not the business organization itself. It was the owner’s behavior.
Since 1940 in the United States, mutual funds such as Vanguard organized as Business Trusts. Their industry holds trillions of dollars of assets. Rockefeller’s infamous Standard Oil was a maze of business trusts. In the 1960’s real estate investment trusts (REIT) became popular and remain so today. You can find WalMart Business Trust is in the news too.
In America many professionals — including most lawyers — have little experience or understanding of commercial (business) trusts. None of the leading casebooks on business organizations or associations cover the business trust. Law school curriculum is focused entirely on personal trusts and estates for wealth transfer. There are few references to a trust structure for operating a business. None of them advocate strategies for asset privacy.
Property is conveyed to the trustees to be held, managed or invested for the benefits of one or more beneficiaries. These beneficiaries often hold freely transferable shares unless restricted by the trust declaration. Often these trusts are organized using Massachusetts law because they have extensive case history.
“…a business trust is a citizen of every State in which its shareholders reside…” Navarro Savings Assn v. Lee – No 79-465 United States Supreme Court (1980)
Like the other kinds of trusts described on this site, business trusts have a long history. In our litigious and open internet society they are becoming an increasingly popular way for successful investors to operate with superior privacy.
Federal and state authorities retain the power to tax the income of any business in your chosen domicile. However, a Business Trust has flexibility in how its classified and where.
Business Trusts have no special distinction in the Internal Revenue Code. Just like LLCs, you’re taxed as – an individual, partnership, or corporation.
The standard corporation is Subchapter “C” and you may optionally elect “S” as needed. With passage of the 2017 tax law many investors prefer the 21% corporate tax rate.
C – ideal for investors seeking fringe benefits and long term capital gains.
S – for those seeking maximum cash flow.
Double taxation chatter can be misleading. It really depends upon your objective – capital gains or income plus various types of deductions.
If you’re applying for a loan with an S corporation, the underwriter will request both your personal and corporate returns. If you use Subchapter C, they only want your personal return.
The business trust structure is exempt from paying the annual $800 franchise tax to the Franchise Tax Board.
When properly executed a Business Trust may file Bankruptcy in Federal Court – either Chapter 7 or 11.
More Economical Overall
Establishing your Business Trust is less costly and easier than a corporation or LLC. Over the years it requires far less paperwork, state fees and legal requirements. It gives you greater flexibility and offers excellent tax options.
Corporations, partnerships and LLCs are paperwork-intensive, and can take weeks to fully set up. Naming conflicts occur. With these organizational models you incur ongoing fees, filings and disclosures with the secretary of state in whatever state(s) you do business. Plus add in the value of your personal time to maintain the organization.
Your Business Trust can avoid all of these state regulatory hassles and expense if setup right. You get privacy along with money and time savings. It’s a triple combination.
Corporate Veil Risks
In exchange for compliance with state rules and regulations of the corporation and LLC models, companies are granted certain statutory protections. Should it fail to follow any of the many government requirements, the so-called “corporate veil” (liability protection for the entity) is pierced. This can render partners, directors, and stockholders unprotected and personally liable for debts of the organization.
More painful is a tax audit. If during audit the IRS or your State tax authorities request your records and discover you failed to maintain the veil, they can disallow all business deductions and recast income to personal tax rates – years back to inception. This could be devasting.
Insurance claims are subject to denial if your Corporation or LLC fails to respect the veil. Imagine settling that big lawsuit out of your own pocket.
Your Business Trust has no corporate veil or paperwork requirements from the state. Yet the participants – trustees and beneficiaries possess a great many benefits and safety protections. It remains a prudent business practice to keep basic records according to the original trust agreement.
No Resident Agent
All states require Corporations and LLCs to maintain a “resident agent” for legal service. The agent physically resides in the state where the company is chartered and is required by law to accept legal papers served upon the corporation or LLC. Lawyers like the resident agent requirement because it makes it easy for them to sue your corporation or LLC.
Business Trusts may or may not have resident agents. They do they have address requirements. Attorneys eager to sue a private business trust have an uphill battle to climb. First they must locate and identify the current trustees. How many states are there in the USA? It’s difficult, expensive and time consuming. It’s never our job to make it easy for them.
You get three types of limited liability safety. This includes protection for the company itself, the persons who operate the business (trustees) and those that get the financial benefits (shareholders).
In the conventional corporation structure, the stockholders are the de facto legal owners of assets. The officers are agents of the stockholders. This can cause liability. Although a stockholder of Google is unlikely to have problems, in a small corporation they are at greater risk because of state compliance issues.
In a Business Trust, the trustees are the legal owners of assets. They are not agents of the shareholders. Yet they do have a fiduciary responsibility to the trust and shareholders. Provided that the trustees manage the business without interference, the shareholders liability is little to none. This single fact alone is important to many investors.
Providing you operate correctly – personal creditors, civil judgments or tax liens of a Trustee or Beneficiary never attach to Business Trust assets.
Corporate stockholders as owners can sue the officers or directors for performance issues. Trust shareholders are not owners and cannot sue the trustees for performance issues without risking their safety. If they do, it could cause the trust to be recast as a partnership. This might be to your advantage.
States with Registration
There are both states with and without registration requirements for a Business Trust. Look up your Secretary of State or the Civil Code for more details. Just because a state does have a registration requirement doesn’t necessarily mean you have to register. And even in states with registration you might not need to comply.
Delaware offers Statutory Trusts. They are primarily designed for corporate finance and required if a public traded company. Secretary of State registration is mandatory. Transparency and visibility are by design.
Remember, a statutory trust and corporation are both artificial persons created by government permission. Your non-statutory business trust is a natural person, with all the rights of an individual.
Depending upon the type of business you operate, you may need a local business license or tax certificate.
A business trust is easy to dissolve or terminate. In contrast a corporation or LLC requires another public filing document with the Secretary of State. Your business trust simply liquidates the assets and distributes the proceeds to beneficiaries.
Any business organization can have investors. Corporations have stockholders. LLCs have members. Business Trusts have shareholders.
If you choose to have investors securities laws may apply. It doesn’t matter what type of organization. Securities vs organization are two separate issues.
Any type of business organization can obtain and built a credit profile. This goes for Corporations, LLCs and Business Trusts alike. The organization has it’s own legal and financial identity. When the individuals responsible for a new organization applies for credit, the lender will typically ask for personal signatures. Once the business has established itself over time separate from the owners, then it may obtain credit by itself.
Your Business Trust Source – 2022
A business trust offers many unique applications and benefits. Combine it with other business organizations as well as your living trust. Take back privacy for your assets. Call or email if you have questions. Check out the e-Seminar here