Part One

The Business Trust

The owner of a business transfers the business to a trust (also known as an unincorporated business trust, or UBO) in exchange for units or certificates of beneficial interest, sometimes described as units of beneficial interest (UBI). The business trust makes payments to the trust unit holders or to other trusts created by the owner (which are characterized either as deductible business expenses or deductible distributions) purporting to reduce the taxable income of the business trust to the point where little or no tax is due from the business trust. Additionally, the owner claims the arrangement either reduces or eliminates his self-employment taxes on the theory that he (the owner) is receiving reduced or no income from the operation of the business. In some cases, the trust units are supposed to be canceled at death or "sold" at a nominal price to the owner’s children, which leads to the contention by promoters that there are no estate tax liability.

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