As we near the end of 2023, we reflect on where we have been and what we would like to accomplish in the future. If you own a business, resist the urge to succumb to the tyranny of the urgent and fail to take the time to consider the future of your business. If you would like to make the world a better place for future generations, consider a relatively new and perhaps unfamiliar planning tool: the purpose trust.
What Is a Purpose Trust?
A typical trust is an agreement involving several parties: the grantor, the trustee, and the beneficiary. After an attorney creates a the trust, the grantor funds it with money or property. Then, the trustee manages associated money and property as specified in the trust for the benefit of specific named beneficiaries. One exception recognized exists under the law when a charitable trust contains charitable purpose but no specific beneficiaries. In recent years, however, some states have enacted statutes that allow the establishment of non-charitable purpose trusts (generally known as purpose trusts).
Trust Goals
Because there are no beneficiaries to ensure that the trustee is carrying out the purpose of the trust, the grantor must designate an independent trust “enforcer” who can petition the court if the trustee fails to perform its duties under the trust. The court could assign the same or a different party as a trust protector. This person modifies the trust, if necessary, for example, to add beneficiaries if the purpose of the trust ends. What’s more, they change the situs of the trust, or even terminate it. The goal of a purpose trust differs from that of more common estate planning tools. For instance, not aimed primarily at minimizing taxes or transferring wealth efficiently, it carries out the grantor’s stated purpose.
The Patagonia Purpose Trust
In September 2022, Yvon Chouinard, the founder of Patagonia, a $3 billion clothing company, transferred the voting stock of the company to a purpose trust designed to further his lifelong goal of fighting the environmental crisis. In a message from Chouinard on Patagonia’s website, he explained that his desire was for the company to continue to pursue its stated purpose: “We’re in business to save our home planet.”
After learning that his children disdained running the business, he considered his options. Although he could have sold the company and donated the proceeds to other organizations that would continue to pursue the company’s goals, he worried that a new owner of Patagonia would have different values and that his employees would not have job security.
Why Would You Want to Transfer Your Business to a Purpose Trust?
If you own a profitable company, there are several reasons why you may be interested in a purpose trust as you consider business succession planning. Like the Chouinard family, you can ensure that in addition to providing job security for your employees, the values underlying your business continue to be pursued for many decades into the future. Especially if you do not have children who are interested in running the business, or if your children do not share your values, the terms of a purpose trust can require future management to adhere to the purpose of the trust. Transferring the business to a purpose trust will also ensure that it remains a private company and that the pursuit of profits will never replace your cherished values as its main goal.
What are your goals for the future of your business? If you have a desire to use the wealth you have acquired for the benefit of others, you may be interested in learning more about a purpose trust. Give us a call if we can help you determine if you would like to explore this option.
About Skvarna Law Firm in Upland and Glendora, California
Let a skilled attorney assist with your estate plan. So, contact us today to learn about your options (909) 608-7671. We operate offices in Glendora and Upland, California. Therefore, we provide legal services for individuals living in San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Montclair, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
