As seen in Forbes October 15, 2026.
Christopher F. Poch is the Founder & CEO of Promethium Advisors and #1 bestselling author of “Money & Meaning” and “Going Independent.”
Directed trust succession planning can be an effective way for a business owner’s legacy to live on for generations after his or her departure. Though lesser known, a business can operate inside a directed trust for years, potentially without requiring a sale, allowing the beneficiaries to continue to receive the economic benefits and foregoing the requirement to diversify.
All business owners at some point face the question of succession planning. There are many strategies, and they usually boil down to gifting or selling control to family, employees or outsiders. In many cases, preserving the family legacy is as important, or even more important, than maximizing the sale price.
Warren Buffett built Berkshire Hathaway in part by enabling existing management to run the businesses they bought as they always had. If your company is not big enough to attract the attention of a company like this, ask a qualified attorney about using a directed trust.
Directed Trusts
A directed trust is different than a charitable trust, a public benefit corporation or a purpose trust. Broadly speaking, unlike many other trusts, which are subject to prudent investor requirements, a directed trust specifically allows for an asset to be held, such as an operating business, without requiring diversification.
For an owner who wants to keep the business intact, run by professional management for the benefit of the beneficiaries and have its management overseen by an independent trustee, a directed trust may be a good fit.
Three Questions
If the answers to these questions are yes, a directed trust may be worth considering.
- Is the business reputation based upon the collective efforts of the employees or dependent on the founder?
- Is there a deeply embedded culture of shared values that is worthy of perpetuating?
- Is the business large enough to justify the effort and expense to establish and maintain?
One caveat: Facts and circumstances change, and locking a family or a business into an infinitely rigid construct that made sense 40 or 50 years earlier may not be a good idea. (The Barnes Foundation outside of Philadelphia is one example of the challenges that can arise decades later.)
When A Directed Trust Can Make Sense
Say a founder owns a business that they would like to continue to serve the same purpose well into the future, long after they hand off the management to someone else. The sale may produce substantial liquidity, but after taxes, the ability to produce income may be substantially less. Additionally, after a sale, the new buyer, for better or worse, often changes things right away. They may consolidate operations, close down locations or replace staff with technology.
In some situations where the company is contributed to a directed trust, existing management can continue to run the business for the economic benefit of the beneficiaries. This can be family members but as often as not, would entail management by non-family members. The trustee’s role is generally oversight, not day-to-day management. They are responsible for enforcing the terms of the trust and taking action, including replacing management, if necessary.
If there is a period of time when the operating results of the business suffer, as long as the trustee satisfies applicable law and the terms of the trust, they generally escape liability. The nuances are more complex, and there are usually a series of checks and balances to ensure the trustees, management and the beneficiaries have clearly defined roles and responsibilities.
State laws govern trusts and entities, and court rulings and legal interpretations change, so seek out the advice of a qualified attorney if you care to learn more.
What A Directed Trust Does Not Do
A directed trust does not ensure the company will prosper after the owner is gone, nor will it ensure family harmony. Conflicts can arise from disagreements about management compensation, strategy and capital investments. Some managements prefer to keep “large” amounts of cash in the company and beneficiaries often prefer larger distributions. Even a deep understanding of purpose, roles and responsibilities cannot prevent disagreements two and three generations down the line.
Author Eric Markowitz researches companies that have lasted generations (centuries in some cases) and what enabled them to endure. For founders who aspire to have their own company endure for generations, and not merely to transfer wealth but to create a structure that can preserve values, culture and purpose, a directed trust might be the right vehicle. Speak to a qualified professional to see if it might be right for you.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
