Can I Leave My Family Business to a Minor Child?

Let’s say you have a thriving family business that you have built through your own hard efforts during your lifetime.  You are raising your minor child to see the value of the business and to be entrepreneurial, and you want her to be able to enjoy the benefits of ownership and someday take over management and operations.

How do you ensure that she has the opportunity to take over the business on your death and when she reaches the age of majority?

One solution is to place the stock or other ownership interests in the business in a trust for the benefit of the minor child.  The trust document  should include specific instructions that you, the Trustor, desire that the business be retained in trust, that it be managed and operated under the direction of a trustee until the child reaches the age of majority, and that the trustee is authorized and directed not to sell the business or convert the trust assets to publicly-traded stocks or other assets.

You should make it clear that the trustee does not have a duty to diversify the trust holdings.  The drafting of these provisions requires care and expertise, so a consultation with an estate planning lawyer is strongly recommended.

Even with all of these precautions and instructions, it is not 100% certain that a court, asked to review the terms of the trust, will authorize the trustee to keep the operating business in trust for the child. 

If there is a dispute among the heirs about your original intentions, the qualifications of the trustee to supervise the operations of a private business, or the risks/rewards of continuing to operate the business until the child reaches adulthood, a court may order the business to be sold and the proceeds invested in a diversified investment account for the benefit of the child.  The courts may vary from state to state in how much they will respect your intentions.

Even with all of these precautions and instructions, it is not 100% certain that a court, asked to review the terms of the trust, will authorize the trustee to keep the operating business in trust for the child.

If it is important to you to leave your private business to a child at the time of your death, the time to begin planning for that possibility is now.

Keith Baldwin is a business transactions and securities lawyer with a forty year history of serving clients’ legal needs. Keith focuses his practice on business relationships, including mergers and acquisitions, agreements among owner-entrepreneurs, and best practices for corporate governance. Keith can be reached via email at keithbaldwin@dwt.com or directly at 425.646.6133.

Matt Loftin counsels individuals, families, and businesses on a broad range of trust and estate matters, including business planning. He advises clients on tax-efficient wealth and property transfers made during lifetime and at death through the utilization of client-specific planning techniques, including charitable planning, business-succession planning, and special needs planning. In addition, Matt represents personal representatives, executors, and trustees in the administration of trusts and estates. Matt can be reached via email at mattloftin@dwt.com or directly by phone at 425.646.6118.