Can a trustee keep an inherited family business instead of selling it?
Key takeaway
A trustee can keep an inherited family business when the governing law and the trust terms permit it. Wisconsin, Washington and Oregon each have a provision that speaks to a trustee holding a business interest.
Wisconsin lets a trustee continue a business interest
Section 701.0816(6) in Wisconsin lets a trustee continue a business interest and act as an owner would act. The authority reaches specific actions that an owner could take. A business that passes into a Wisconsin trust can remain in operation with the trustee in the owner's position.
For a family that holds an operating company, the Wisconsin provision describes what a trustee has the authority to do once the company sits in a trust. Changing the form of the business and contributing capital are examples of owner-type decisions the provision covers. The provision also names merging and dissolving as actions within the trustee's authority.
Washington keeps the duty to diversify in place
Washington allows a trustee to participate in establishing and operating a business under RCW 11.98.070(22). The same provision states that the trustee is not relieved of the duty to diversify. A trustee in Washington who holds a family company works under a business power and a diversification duty at the same time.
Practitioners describe concentration as a feature of family wealth that sits in a business. One practitioner says a disproportionate part of a family's wealth can quickly be consumed into a single illiquid asset class investment. The same practitioner observes that many family offices own an associated family business.
Oregon ties a trustee's control of a business to the beneficiaries' interests
Oregon requires a trustee voting shares or exercising control powers over business entities to act in the interests of the beneficiaries. The standard attaches to two kinds of trustee conduct. Voting shares is one, and exercising control powers over a business entity is the other.
Voting and control are the ordinary levers of ownership in a company. Oregon's provision speaks to how a trustee uses those levers once a business interest sits inside a trust. A trustee who holds shares of a family company in Oregon applies that standard to votes and to control decisions.
Trust language and dynasty trusts
Trust language can speak directly to a concentrated business interest. In that setting the trust document addresses retention in its own words.
The grantor places business shares in the trust to benefit multiple generations of beneficiaries.