Non-charitable purpose trusts are gaining attention as an alternative structure for business succession planning.
Traditional estate planning will often give control to family members, or maybe some of them, in varying degrees, usually through some combination of trusts and trust-owned business entities such as LLC’s. Trusts generally must have beneficiaries and quite often those beneficiaries have some degree of control over the trust and any business it owns. The control of the beneficiaries may be large or small depending how the trust is drafted. There may be a true dynasty trust lumping all descendants together, or perhaps beneficiary-controlled subtrusts, or something in between. The beneficiaries may or may not have the ability to remove and replace trustees. Regardless of the exact structure, the beneficiaries have rights as equitable owners and can sue for various reasons if they are not happy. I encourage clients to consider values transmission planning using incentives, not only in their estate plans but during life in accordance with their family mission which is hopefully consistent with their estate plan. The hope is that transmitting values important to the particular family and giving the beneficiaries some measure of control will keep the trust (including any business owned by it) viable as an instrument to build Family Power, rather than allow independent fiduciaries to ignore those values in favor of more pedestrian values inimical to Family Power, for example subordinating all decisions to a prime directive of protecting the earth from climate change. I mean, who would want that? I tell people all the time, while discussing options for leaving a legacy of firearm training, that i would be equally happy planning for a family that wanted to leave a legacy of fighting climate change — but no family has ever asked me to assist with such nonsense!
Well as it turns out, that is exactly the sort of planning involved in the most famous recent example of a commercial purpose trust. The founder of Patagonia, Yvon Chouinard, cared so much about fighting climate change and taking care of his employees, that he transferred all the voting stock of his company to an Oregon Stewardship Trust under a particularly aggressive Oregon statute allowing commercial purpose trusts with no limit on duration. The trust he created imposed strict requirements elevating his stated progressive goals to a higher priority than earning profit for the shareholders, which is perfectly fine under that statute and similar statutes in other states. The Chouinards donated the rest of the company (non-voting shares) to a 501(c)(4) involved in sympathetic social work and lobbying.
Why let the wealthy woke fascist communards have all the fun? Such a trust could just as easily promote gun culture and firearm training. You might add it as #8 on my list of Seven Types of Gun Trusts, although in my opinion gun trusts work best when they have actual beneficiaries and this purpose trust planning makes more sense holding business assets generating income that could then be used to promote some type of firearm legacy, for example by donating to aligned organizations or perhaps by setting up gun trusts to train actual beneficiaries.
As good as Oregon’s statute is, the state is too far left to be safe for any such gun planning, over the long run. Ditto California. Even with the traditional planning i do in California, i generally recommend moving trusts if feasible out of California once they become irrevocable whether or not they include gun planning. And specifically with regard to purpose trusts, although California does allow them under California Probate Code § 15211, the term is limited to only 21 years and most business owners wanting this type of planning will want to extend their business at least 50 or 100 years, typically. (Under § 15212, California provides separately for pet trusts, another type of purpose trust, which can last up to the lifetime of the pets under that section.)
While fifty or a hundred years is probably sufficient to satisfy the goals of most business owners wanting to create a social legacy for their company as in the case of the Chouinards or other communards or perhaps some great Americans wanting to more broadly transmit the militia ethic beyond merely their own descendants, and definitely sufficient for another possible use which would be to keep the commercial legacy going while bypassing incompetent/disinterested family members until some alternate succession can be arranged (if key employees are not ready to agree to buyout, for example), rest assured there are multiple states allowing purpose trusts of even longer duration, several in perpetuity.
Texas passed a statute allowing purpose trusts just a couple of years ago, which allows a very respectable duration of 300 years and broad flexibility of purpose, whether economic or not, to allow something like what Patagonia did, or maybe something a little more Texas. Couple that with Texas’ unparallelled business climate, and Texas may be your best bet. Attorney David R Duringer and his Protective Law Corporation are qualified to practice law in Texas, as well as California and Washington.
