Trust

A trust separates the legal ownership of assets from the benefit of them. The person who creates the trust, often called the settlor or grantor, transfers assets to a trustee. The trustee holds and manages those assets according to the trust’s terms, for the benefit of the beneficiaries. A trustee owes fiduciary duties to the beneficiaries, which means acting in their interest rather than the trustee’s own.

Trusts take many forms. Some can be changed or revoked by the person who created them, and some cannot. Some give the trustee wide discretion, and some set detailed rules. The rules that apply depend on the trust document and the law that governs it.

Families often place shares in the business into one or more trusts. The aims can include keeping ownership together across generations, protecting assets, planning for estate taxes, and providing for family members who will not work in the company. A founder may also write a letter of wishes to explain to the trustees how they hope the trust will be used.

A common confusion

The trustee who votes the shares is not necessarily the person who runs the company. A trust may hold control of the business while a family successor leads it day to day, and the two roles can pull in different directions. Successors sometimes assume that a trust structure settles their position. It settles ownership. Authority with the board and the senior team still has to be earned.

Why it matters

When a trust holds the shares, the successor’s audience includes the trustees as well as the board and the family. Being able to explain decisions clearly to people who hold a duty to the beneficiaries is part of leading the business. The article on what a family office does for the next generation covers the wider structures many families use.

This is a general definition only. Trusts have significant legal and tax consequences, and the family should involve its lawyer and accountant in creating or changing one.