Introduction
You’ve probably heard of trust funds, but do you understand why they’re so important for your business? Trust accounts allow you to keep your business separate from personal finances, protect your family during a bankruptcy, and even help make sure that your company stays afloat. Read on to learn more about the benefits of trust accounts and how they can help your small business thrive:
Separate Business and Personal Finances
A trust fund is a separate account that’s used to pay taxes and business expenses. It’s also a legal entity, which means you have to have an attorney create one for you.
The reason why this is so important is because it allows your business to be separate from your personal finances. In other words, if something goes wrong with the business and the IRS comes knocking at your door or if someone sues you because they were injured during one of your events, they won’t go after any personal assets (vehicles/real estate). Instead, they’ll go after any assets held in common between both parties involved in litigation (like bank accounts).
Setting Up a Structure that Complies with State and Federal Law
Trust funds are a great way to legally separate business and personal finances. When you set up a trust fund, you’re able to designate how much money goes into the account and when it gets distributed. This helps ensure that your business has enough capital to operate while also keeping your personal finances separate from those of the company.
You can find a detailed page of state law and rules at FindLaw.
When setting up this type of arrangement, it’s important to understand state laws on how much money can be transferred into or out of an LLC without triggering taxable income for owners who contribute their own funds (or partner contributions). If any amount over $10K is transferred out annually without being reinvested back into the business then those distributions may be subject to tax at ordinary income rates instead of capital gains rates, which could be quite costly!
Avoid Bankruptcy
A trust fund can help your business avoid bankruptcy. If you are facing a financial crisis and need to file for bankruptcy, a trust fund can be used to pay creditors, debts, and other expenses. This will allow you to keep the company running while still being able to pay off any outstanding bills and avoid losing assets.
Trust Accounts are Inexpensive and Legitimate
- Trust accounts are cheap to maintain, and you can open one at any bank in the country. Unlike a personal account, which requires a lot of paperwork and time to set up, trust funds are easy to create and require no extra paperwork other than filling out an application with your bank’s trust department.
- Trust accounts are regulated by the government; They are also more secure than personal accounts and are federally insured up to $250k per customer (or more if you have multiple accounts). This means that if something happens at your bank–like it goes bankrupt or gets robbed–you won’t lose any money stored there because it’ll be covered by FDIC insurance (Federal Deposit Insurance Corporation).
Various Types of Trust Funds
Trust funds are not all created equal. There are various types of trust accounts, and they each have their own unique set of benefits.
The first step in understanding this is to know that there are two different types of trusts:
Conditional – A conditional trust requires that a beneficiary meet certain conditions before they can access the funds within the account (e.g. graduating from college or getting married).
Irrevocable – An irrevocable one does not require any type of action on behalf of its beneficiaries in order for them to receive their inheritance. it’s set up so that once money goes into it, it cannot be removed by anyone else besides the owner unless they give their consent or die before withdrawing everything.
You’ll also want to consider whether or not your fund will hold just one person’s assets or multiple ones; if so then how much control does each individual person have over those assets?
Conclusion
Trust funds are a great way to keep your business safe and secure. Trust accounts can be used to protect against fraud, identity theft, bankruptcy and other financial issues that could cause problems for your business. They also allow you to separate yourself from personal finances so that the two do not overlap or interfere with each other in any way whatsoever.
FAQ
1. Can legal clients use trust accounts with their lawyers?
Yes! Setting up a trust account is in fact a payment method that a lot of lawyers use nowadays.
2. How do I set up a Trust account with my lawyer?
There are many different methods to set up trust accounts with attorneys. One of the easiest ways however, is through RunSensible.
3. Is there a way for people to test setting up the trust account?
Sure! We have a Free Trial for all of our customers to see how intuitive working with the RunSensible app is.
