The vast majority of trusts are not focused on running a business. Usually there are so many other purposes, that the idea of running a business "in trust" are not considered in most situations.
Is a Trust a Business?
For example, a trust that owns a duplex that gets rental income is not defined by most as a business. But, if the trust owned 80 apartments, it is most definitely a business.
Can a Trust 'Become' a Business?
A trust that owns a vacant corner of land, holding it for future generations, sounds like a passive non-business. No activity equals no business. But, if the circus comes to town and rents the land, and you start charging for parking, and then the circus makes it a monthly event; suddenly, it's a business for serious money.
Operating a Business In Trust
A trust that operates a business is legal in all states. You will need to select your controlling law, such as State or Federal. You may be required to conform to local licenses, permits, and taxes too.
Costs of a Business In Trust
Anyone can simply create a business operating "in trust". If it's an internet business, multi-level, consultancy, or service business; you may not have any further requirements like a "license", or a store lease, or advertising, or registration, or Fictitious Firm filings. You may even safely eliminate safety inspections, fire inspectors, health department review, planning and zoning review, or added taxes.
Costs of Closing The Business
If a small business fails, as 80% of them do within the first 5 years, a trust can eliminate or reduce the costs of startup, operation, and of failure. The close down costs are basically zero. The trust dies a natural death, without further burden.
Business Profits and Taxes
The basic rule is that net profits need to be reported on a tax return. This can mean that they can be declared on an individual return (usually a Schedule C), or on a separate tax return of the trust.
One of the advantages is that you can assign the profits and/or taxes to the same (or different) person as actual distributions. Another advantage is that the controller (Trustee), or the passive beneficiaries (kids?) could be a better tax return for the declared profits.
Keep Finances Separate - All financial accounts for the trust should be separate and apart from those of the individual members. Keep good records.
Use the Trust formally - Members should expressly refer to the Trust in all dealings with third parties so it is understood they are dealing with the Trust, not with the members in their individual capacities.
Trusts May be Much Better than a Partnership, LLC, or Corporation
A Private Asset Trust may be easier, safer, more consistent with your purposes, and be governed by fewer restrictions and rules. Often, a trust performs the same functions, but with your own rules.
Keep the beneficiaries happy. Submit annual reports - Keep disclosures accurate. Maintain changes and minutes in records. Act like a business. Include tax reports and pay taxes.
Definition of a Business Trust
If you are offered a trust specifically called a "Business Trust", it may be a problem. The trusts marketed by promoters that contain the words like "pure", "certificate", "unincorporated", "units", or phrases like "tax-exempt", or "constutional", are usually based on an old 1930s ruling by the IRS that temporarily declared those types of trusts tax-exempt. The IRS later reversed their position, but promoters continue to mis-represent the facts. Those types of trusts are assumed by the IRS to be tax evasion, and are examined by the criminal division, instead of the audit division.
A Private Asset Trust is the most appropriate trust organization, and can be used safely for business.