Family Business Trusts


demand an exorbitant buyout to avoid a lawsuit. “In this example, when Deborah dies without any descendants, a trust can call for her interest to pass on to her siblings or their descendants,” says Scrog- gin. “Trusts often are used to assure that business interests are retained for the benefit of family members rather than passing to outsiders.”


Stay Flexible The above scenarios illustrate the flex- ibility of irrevocable trusts. They can do all kinds of things for people who are too young to run a business, have no interest in doing so, are incapacitated, or need to be protected from their own damag- ing decision-making habits. Trusts solve business problems by separating legal ownership and control of a business from the enjoyment of the business assets by beneficiaries.


Flexibility, though, runs both ways.


Attorneys advise against micromanaging the family business transition. “Some- times people take control too far by not including enough flexibility for the beneficiaries,” says Sampson. “As a result, what seems like a reasonable provision in a trust today might make no sense some years down the road.”


Sampson gives this example: Mark


heard that “incentive trusts” could be established to obviate the problem of a child becoming a “trust baby” and slacking off instead of working. So to inspire a work ethic in his son Jerry, Mark established a trust that would provide distributions to match his son’s earned income each year. However, Mark’s attorney encouraged the inclusion of a provision allowing additional distributions in the trustee’s discretion, just to provide flexibility.


One day Jerry was driving home on a


motorcycle when a serious accident left him unable to ever work again. If it were not for the provision allowing discretion- ary distributions beyond the amount of Jerry’s earned income, the trust assets would not have been available to provide the money required for his medical attendant.


Consider A Philanthropic Trust Some family businesses accumulate more wealth than can be productively


utilized by the next generation. Some of those assets might be put into a chari- table trust.


“History shows us that successful families pass down not only wealth but


also values,” says Arlene Cogen, a certified financial planner and philanthropic leadership consultant based in Portland, Ore. “A business transition is a good opportunity to set up a philanthropic vehicle, such as a donor advised fund or a private foundation. They allow multiple generations to work, give, and serve the community together while reducing taxes.”


Your business can be seen as a valuable community resource when you


establish programs that help youth, education, or the homeless. There is no shortage of need. “Giving money away is good for business,” says Cogen. “It elevates you in the community and that tends to come back tenfold.”


That story carries a moral. “Don’t try to design for a scenario that is too specific,”


advises Sampson. “It’s a good idea to include a provision that the trustee can make distributions of income and principal in the trustee’s discretion just in case something unanticipated happens.”


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MiniStorageMessenger.com • September 2022 55


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