Trusts and Passing on the Family Business
Planning for the Future: More Than Just a Will
For many, writing a Will is a practical necessity rather than a personal choice. It addresses the “what if” should the unexpected occur. Yet, too often the first draft is left untouched for years and may not reflect what’s truly best for future generations.
When planning how wealth and assets should be managed, there are two groups to consider:
Minor children and young adults, who lack financial maturity;
Adult children, who may already be married, starting families, or running businesses of their own.
Why Trusts Protect Younger Beneficiaries?
Most people recognise that large inheritances shouldn’t pass directly to minors. Instead, trusts are used to hold and manage assets until children reach an age where they can take responsibility. Trustees, acting with experience and impartiality, safeguard those funds in the meantime.
Transferring the Family Business: Timing is Key
For those with a family company, the question isn’t just about leaving money—it’s about how and when to transfer shares. Parents often prefer a gradual transition, balancing continued involvement with preparing the next generation to take the reins.
Typical stages include:
Initial tranche – shares given once a child has shown commitment to the business.
Second tranche – when the child is fully engaged in management and future growth.
Final tranche – typically transferred on the parent’s death.
This phased approach avoids handing over too much responsibility too soon while ensuring business continuity.
The Challenge of Divorce and Family Dynamics
A key risk in succession planning is the breakdown of a child’s marriage. Without safeguards, divorce could lead to shares being transferred to an ex-spouse—potentially creating conflict, boardroom disputes, and even damaging the company’s future.
Why a Trust Can Protect the Family Business?
Leaving shares or assets in trust rather than outright can help protect against these risks. While courts may view trust assets as a resource in divorce proceedings, there are still significant advantages:
Trustees hold the legal ownership and voting rights, acting in the interests of all beneficiaries.
Family business decisions are protected from personal disputes.
Future generations, including grandchildren, benefit from continued ownership.
Professional oversight helps prevent poor financial decisions.
Protection is provided against spendthrift behaviour, creditor claims, or issues such as substance misuse.
Protecting Generational Wealth
Business owners are often encouraged to use complex share structures, but these may not fully address risks such as divorce, creditor claims, or unexpected death. A well-structured trust, however, can:
Preserve family wealth for multiple generations,
Ensure continuity of the family business, and
Safeguard against external claims or disputes.
Final Thoughts
If you run a family business or hold significant assets, don’t leave the future to chance. Take time to:
Review your Will,
Consider how you want to transfer wealth and business interests, and
Explore the benefits of setting up a family trust.
This proactive approach helps protect not only your children but also grandchildren and generations to come.
To find out more, contact us.