Seminar D: Taking Care of Business: Why (and How) a Purpose Trust Might Be the Answer to Your Client’s Business Succession Challenges

2025 Annual Meeting
March 20, 2025 – 9:45am –11:15am
Palm Springs, CA

If you have clients who are business owners, this presentation will give you another “tool in the tool kit” to discuss with those clients. Even if you don’t have clients who are business owners, you will still want to hear the discussion of this cutting-edge trend so you can explain “what’s up with Patagonia” at the next cocktail party!

The noncharitable perpetual purpose trust is a trust that manages property for a stated purpose and not for beneficiaries. This type of trust did not exist in the common law and therefore requires an authorizing statute to be valid. Section 409 of the Uniform Trust Code, adopted in at least 36 states, provides such authorization.

A noncharitable purpose trust can be used for many purposes, but in this presentation the panel will focus on purpose trusts intended to own and operate a business. This type of purpose trust is sometimes referred to as a “stewardship trust” or an “employee ownership trust.” These types of trusts allow the business owner to provide for succession of the business in a way that perpetuates the owner’s values. These values can include operating the business to serve the local community, support employee welfare, or maintain sustainable business practices.

The panel will discuss the history and current state of purpose trusts. They will then describe the mechanics of structuring the sale or gift from the business owner to a purpose trust and the implications for the business owner, their family, the business, and the community in which the business operates. Income tax and transfer tax implications will also be covered. Lastly, the panel will discuss issues that might arise, practical drafting implications, and suggestions for the future of these trusts.

Speakers: David Arthur Diamond, Susan N. Gary, Ellen K. Harrison