Engaged Ownership

Chapter 17When an Owner Is Also a Trustee

A trust divides ownership: the trustee is the legal owner of the shares and holds them for the benefit of the beneficiaries of the trust.

When a trust owns shares in a family business, ownership decision making must accommodate a fiduciary perspective. A trustee of a trust that owns has legal fiduciary duties to the beneficiaries that circumscribe her ownership choices. To operate effectively the structure, membership, goals, and tasks of the Owners Council will need to take into account the purpose of the trust and the roles of the trustee and beneficiaries.

Increasingly, business owners are transferring shares in trust rather than outright, particularly those who reside in jurisdictions that impose gift, estate, inheritance or death taxes on non-sale transfers. A trust can offer tax advantages, creditor protection, and professional oversight for a critical family asset. If an owner feels anxious about whether her children and grandchildren will be capable shareholders, she may be more comfortable putting the shares in trust than gifting them outright. It may ease her concerns about the problems that might arise if shares are sprinkled among descendants over several generations and many individuals come to own non-controlling interests.

In essence, a trust divides ownership: the trustee is the legal owner of the shares and holds them for the benefit of the beneficiaries of the trust. The trust document spells out the rights and ...