Page 30 - Wire Rope News & Sling Technology - February 2020
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continued from page 28             should not be an employee of one of the   START EARLY
         aging the family business  transition.   beneficiaries, for example, or a relative.   Starting the trust  planning  process
         “Sometimes people take control too far   The  flip  side  is  that  the  trustee  must   early will help protect your family busi-
         by not including enough flexibility for   be strong enough to sometimes say ‘no’   ness assets from a sudden loss through
         the  beneficiaries,”  says  Sampson.  “As   to the beneficiaries. The balancing act   an unexpected lawsuit or death. “Plan-
         a result, what seems like a reasonable   is to provide enough flexibility without   ning should start as soon as your busi-
         provision in a trust today might make   giving so much freedom that the trust   ness has assets worth protecting,” says
         no sense some years down the road.”  becomes a sham.”                 Bill Babb, Senior  Consultant at the
           Sampson gives this example: Mark                                    Family Business  Institute, Raleigh,
         heard that “incentive trusts” could be   DISCRETIONARY PAYMENTS       NC (www.familybusinessinstitute.com).
         established to obviate the problem of   As  the  above comments  suggest,   “You want a smooth and safe transition
         a child  becoming a “trust baby” and   trusts  need  to  recognize  the  possibil-  program in  place before the death of
         slacking  off  instead of  working.  So  to   ity of future surprises. That’s why the   someone in an ownership position.”
         inspire  a work  ethic in his  son Jerry,   trend today is toward the use of “Dis-  When seeking outside  help  to plan
         Mark established a trust that would   cretionary  Trusts,”  irrevocable  trusts   your trust, toss a wide net. A family busi-
         provide distributions to match his son’s   which  do not specify a set amount of   ness transition has implications for in-
         earned income each year. However,   income  for  beneficiaries  but  allow  for   come and estate taxes, the protection of
         Mark’s attorney encouraged the inclu-  trustee discretion.            assets, and the outstanding agreements
         sion of a provision allowing additional   Sampson says that  many business   of banks and creditors. Because so many
         distributions  in  the  trustee’s  discre-  owners tell the trustees something like   areas are involved, experts suggest as-
         tion, just to provide flexibility.   this:  “I want my kids  to be educated,   sembling an advisory team that consists
           One day Jerry was driving home on   and I don’t want them living in a van   of an attorney, an accountant, a manage-
         a motorcycle  when  a serious  accident   because they encounter a health prob-  ment consultant and a banker.
         left him unable to ever work again. If   lem. But I do not want the money used   Having bank  lenders  represented
         it  were  not  for  the  provision  allowing   for lifestyle enhancement.” Such terms   is especially important. “It  often hap-
         discretionary distributions beyond the   may be included in the trust itself or in   pens that when a key person dies the
         amount of Jerry’s earned income, the   a side letter addressed to the trustee.   banks get squirrely and call outstand-
         trust assets would not have been avail-  Discretionary trusts offer considerable   ing notes,” says Babb. “To avoid that,
         able to provide the money required for   protection from creditors and lawsuits.   take the initiative long before the ac-
         his medical attendant.             That’s because the law says a creditor   tual transition takes place by helping
           That story carries a moral. “Don’t try   can only access the assets of an irrevo-  your bankers develop working relation-
         to design for a scenario that is too specif-  cable trust to the same extent as the ben-  ships with whoever will be taking over
         ic,” advises Sampson. “It’s a good idea to   eficiary. So if the beneficiary cannot get   the reins of the business.”
         include a provision that the trustee can   at the money in the trust to pay a busi-  If designing  a  trust  takes  resources
         make distributions of income and princi-  ness expense without the permission of   away from management duties,  the
         pal in the trustee’s discretion just in case   the trustee, neither can a creditor.   result is worth it. “Protecting family
         something unanticipated happens.”    Discretionary  trusts  also  free  the   business assets requires a commitment
           Sampson also suggests another point   trustee  to  invest  for  the  highest  total   of time, effort and money,” says Babb.
         of  flexibility:  the  ability  to  change  a   return without needing to worry about   “It’s easy to procrastinate and allow the
         trustee who is uncommunicative or too   meeting arbitrary mandated payouts.   decision-making process to get bogged
         tight with distributions. “There should   So, for example, the trustee may decide   down. But no one has the promise of to-
         be a way to replace the trustee,” he   to invest more money in a broad basket   morrow. The risk of delay is that your
         says. “You can even give that power to   of stocks and bonds rather than only in   business assets go to creditors and the
         beneficiaries as long as the new trustee   lower-yielding bonds which would pro-  IRS rather than to the people you want
         is truly independent. The replacement   vide guaranteed but limited income.   to receive them.” WRNWRN



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