Business trusts have a vital role in how we conduct business and protect our assets. When a beneficiary’s assets, debts, profits, and properties are handed over to one or more appointed trustees, a business trust is used to formalize the agreement. In a declaration of trust, trustees can manage these items on behalf of the beneficiary following the agreement’s terms. Meanwhile, the underlying assets still belong to the beneficiary.
Setting up your venture with a business trust affords certain advantages and protections. Trusts are typically used to safeguard business owners from taxes, creditors, and lawsuits. A well-structured business trust can be the most relevant and practical legal framework for your business.
Contact a Business Attorney Now
Table of Contents:
- What Is a Business Trust?
- How to Create a Business Trust in Massachusetts
- What to Address in the Declaration of Trust
- Further Considerations for a Business Trust
- How Can A Business Trust Attorney Assist You
- Contact Calabrese Law Associates Today
What Is a Business Trust?
A business trust is a legal relationship through which trustees gain the authority to administer a beneficiary’s assets. The legal document outlines the beneficiaries, trustees, terms, and conditions of the trust agreement. Other aspects covered in the contract include the purpose of the trust, explicit agreement over the transfer of assets, and any restrictions on how items will be administered. The trust contract should clarify what will happen to each person’s financial investment in the business.
Business trusts are typically set up for the benefit of a business. The trustee can be an individual or company. In addition to administering assets, the trustee is responsible for making decisions in the beneficiaries’ best interests. At the same time, the beneficiary still uses the underlying assets and receives proof of interest certificates.
A business trust offers businesses some of the advantages of a corporation without the need for incorporation. A Massachusetts business trust is an association where property is held and managed by one or several trustees for the benefit of the beneficiaries, who hold transferable “shares” — i.e., ownership interest — in the trust property.
Business trusts are formed to protect a beneficiary’s assets, though they are also useful in all aspects of financial planning. Individuals can use this legal framework to create a new trust or confirm the terms of an existing one. You can even issue subsequent declarations to amend a current agreement, which keeps your trust relevant as your business changes and grows.
How to Create a Business Trust in Massachusetts
To set up trusts in Massachusetts, you must engage in the correct procedures for your business’s security and success. Proper documentation keeps all parties updated so all your trust proceedings remain legitimate. The Massachusetts business trust statute states you should follow these steps to start a business trust:
- Write: Your business’s trustee will write the declaration of trust to create the trust entity.
- Record: Your trustee can record this declaration of trust with the registry of deeds where the trust is located. The filing fee for declarations and any amendments may change from year to year, as decided by the registry of deeds.
In addition, you may want to make some changes to an existing trust, such as:
- Amending: Within 30 days of adopting any amendments to a filed trust, your trustee should use the above procedure to file copies of the amendments with the secretary and clerks.
- Merging: You can consolidate or merge your trust with or into another company or other companies. If you decide to do this, the trustees of the non-surviving entity should file a copy of the merger or consolidation certificate with the secretary and all relevant city clerks.
Naming Your Trust
The same naming restrictions applied to corporations or other business entities also apply to business trusts. Thus, a Massachusetts business trust cannot have the same name as any other business trust registered in Massachusetts. Trusts also cannot have the same name as any existing Massachusetts corporation, firm, association, or individual. Even using a substantially similar name could result in the other entity being mistaken for your trust or vice versa.
If you want to use a name that is identical or substantially similar to that of an existing entity, you need to obtain written consent from the other trust, corporation, firm, association, or individual. Secretaries can refuse to file your trust if they believe you have claimed a name in violation of these rules.
Annual Reports
Every year your trust operates, you’ll need to file a signed report with the Massachusetts state secretary. This report verifies the name of the business you have a trust for, your business’s primary location, how many issues of outstanding certificates of participation or shares your trust has, and the names and addresses of all your trustees.
What to Address in the Declaration of Trust
Massachusetts law does not mandate what the declaration of trust must contain. However, based on Massachusetts case law, the declaration of trust should address the following matters:
- “the date of the declaration of trust;
- the name of the trustee or trustees;
- a description of the trust res;
- the name of the trust;
- the principal place of business of the trust;
- the purposes for which the trust is being organized;
- provisions for the removal and succession of trustees;
- provisions for the sole and joint authority of trustees;
- a description of the powers of the trustee;
- the manner of execution of documents on behalf of the trust;
- provisions describing the means of certifying to actions of the trustees and for establishing reliance on their authority;
- provisions relating to the liability of stockholders and trustees and for indemnification and contribution;
- provisions for the compensation of trustees;
- provisions relating to shares of beneficial interest, their transfer, and the certificates representing them;
- provisions relating to the termination of the trust;
- the manner of amending the declaration of trust; and
- governing law.” Choice of Business Entity: General Strategies, ODMB MA-CLE 1-1.
In Massachusetts, the trustees control and manage the trust. The beneficiaries — i.e., the persons who hold the beneficial shares of the trust property — cannot participate in the management or control of the trust business without potentially losing limitations on liability that the business trust provides. Therefore, so long as the trust beneficiary stockholders do not take part in the trust business management, they are not personally liable for debts and obligations of the business trust. The business trust is a separate entity and may be sued for negligence and other claims.
Further Considerations for a Business Trust
While business trusts are sometimes known as Massachusetts trusts, they are not confined to Massachusetts. Other states, however, have different laws for their business trusts. If you wish to enter into a business trust outside of Massachusetts, consult with a trust attorney to ensure you understand whether the trust will be treated as a partnership, corporation, or other entity in business transactions. State laws may significantly impact the duties and liabilities of the trustees.
Trustees must stay fully compliant when managing and controlling the business trust property. In some cases, active management of property by trustees can effectively eliminate limited liability. Staying fully compliant with regulations is essential to avoid having a business trust treated as a partnership. In addition, trustees need to understand tax obligations, which are similar for corporations and business trusts.
Trust agreements are generally more flexible, making them ideal for multiple financial obligations. The taxes related to trusts are often less complicated — business trusts, in particular, serve to reduce income taxes. The trust also protects your assets from creditors. Because assets belong to the trust alone, creditors generally cannot claim against them.
The legal framework of a business trust provides greater privacy than the traditional structure. A declaration of trust can ensure that assets are only used following the beneficiary’s original intent. Funds can be professionally administered and used for specified purposes. Flexible asset distribution to beneficiaries allows you to allocate assets across multiple generations.
How Can a Business Trust Attorney Assist You?
If you are interested in creating a business trust, are wondering which business structure is right for you, or need legal help with an existing business, contact Calabrese Law Associates for a consultation. Our five-department structure is designed to help clients succeed.
Business trust lawyers at Calabrese Law Associates are prepared to help you draft the required legal contracts for your trust agreement. They will help you navigate the complexities of business trusts to protect you, your family, or your business associates from legal consequences. Even if your trust is simple, a trust attorney at Boston and Burlington-based Calabrese Law Associates can review the document language or advise you about applicable business or trust laws.
While this type of trust can offer your business some advantages, you will want to consult with the business trust attorneys at Calabrese Law Associates in Boston before deciding to form a business trust. Our business attorneys can help you understand whether a trust is right for you and can address your business’s unique needs. They can also ensure you stay compliant with current laws, best practices, and regulations concerning trusts.
Contact Calabrese Law Associates Today
If you need a declaration for a business trust, the attorneys at Boston’s Calabrese Law Association can help you create a strong and well-written declaration of trust document. Contact Calabrese Law Associates to discuss your business needs with one of our attorneys.
This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.
Attorney Advertising. Prior results do not guarantee a similar outcome.