Beyond the Traditional Trustee: How a “Business Trust Director” Can Support Seamless Business Succession Planning

For many business owners, a revocable living trust is an important part of an estate plan. It can help avoid probate, provide continuity if the owner becomes incapacitated, and create a clear structure for transferring assets at death.

But business interests are not like a bank account or a brokerage account.

A family member or trust company may be perfectly capable of administering a trust, paying expenses, making distributions, and managing liquid assets. That does not necessarily mean they should be making major decisions for a specialized operating business—such as voting company interests, approving a merger, removing or appointing managers, or deciding how the business should be governed after the owner’s death or incapacity.

Texas law offers a flexible solution: a directed trust structure.

Under the Texas Uniform Directed Trust Act, a business owner can separate trust administration from business governance by appointing a specialized Business Trust Director.

The Problem: Traditional Trustee Roles Do Not Always Fit Operating Businesses

A trustee is usually responsible for managing trust assets. In a typical estate plan, that may include:

• Investing trust funds;

• Paying bills and expenses;

• Filing or coordinating tax returns;

• Making distributions to beneficiaries;

• Keeping trust records; and

• Managing communications with beneficiaries.

  
  

Those responsibilities are very different from making high-level decisions for an operating company.

For example, assume a business owner owns several limited liability companies, including a landscaping company, a construction company, and a real estate holding company. The owner wants those membership interests transferred to a revocable living trust. That may be sensible from an estate planning perspective. But if the owner becomes incapacitated or dies, who should vote those LLC interests? Who should decide whether to appoint a new manager? Who should approve a sale, merger, recapitalization, or major change in company structure?

A surviving spouse, adult child, or corporate trustee may not have the industry knowledge or practical business experience to make those decisions well.

That is where a directed trust can be useful.

The Solution: Separating Trust Ownership, Business Governance, and Daily Management

A directed trust allows different people or institutions to handle different responsibilities.

Instead of giving every decision to one trustee, the trust can divide authority among separate roles:

1. The Trust owns the business interests The revocable living trust may hold the membership interests, shares, or other equity interests in the business.

2. The Trustee handles ordinary trust administration The trustee may manage the trust’s cash, investments, accounting, tax coordination, beneficiary distributions, and other administrative duties.

3. The Business Trust Director controls specified business governance decisions A trusted business adviser, industry expert, key executive, or other qualified person may be appointed to direct the trustee on certain business-related decisions.

4. The Company’s managers or officers run day-to-day operations The LLC managers, corporate officers, or operating executives continue handling daily business matters such as hiring, contracts, customers, vendors, and operations.

   
   

This structure avoids forcing one person or institution to do everything.

What Is a Business Trust Director?

A Business Trust Director is a person or entity given authority under the trust agreement to make or direct specific decisions involving business interests held by the trust. The role can be narrow or broad, depending on how the trust is drafted. For example, the trust agreement may authorize a Business Trust Director to direct the trustee regarding:

• Voting LLC membership interests or corporate shares;

• Appointing, removing, or replacing company managers, directors, or officers;

• Approving or rejecting a merger, sale, recapitalization, or dissolution;

• Exercising rights under an operating agreement, shareholder agreement, or buy-sell agreement;

• Deciding whether to retain or sell a business interest;

• Approving major financing or restructuring transactions;

• Coordinating succession of management control;

• Responding to offers to purchase the business; or

• Participating in major ownership-level decisions.

  
  

The trustee remains responsible for the duties assigned to the trustee. The Business Trust Director is responsible for the duties assigned to that director.

Why Texas Law Makes This Strategy Powerful

The Texas Uniform Directed Trust Act recognizes that modern trusts often require specialized decision-makers. In a traditional trust, the trustee is usually expected to manage all trust property. But modern estates may include complex assets such as closely held businesses, professional practices, mineral interests, intellectual property, farms, ranches, and investment entities.

Texas law permits a trust to assign certain powers of direction to a trust director. This can create a cleaner and more practical governance structure. For business owners, this means the trust can be designed so that:

• A financial professional or family member serves as trustee;

• A business-savvy person serves as Business Trust Director;

• Company managers continue running operations; and

• Beneficiaries receive the benefit of the trust without being forced into business decision-making roles for which they may not be prepared.

A Practical Example

Consider a business owner who owns a successful landscaping company through an LLC. The owner wants the LLC interests held in a revocable living trust. The owner’s spouse is trustworthy and financially responsible, but has never operated the business. A corporate trustee is available to administer the trust, but does not understand the landscaping industry, customer relationships, equipment needs, labor issues, or seasonal cash flow. The owner also has a long-time business colleague who understands the company and the industry.

A directed trust structure could provide:

• The revocable trust owns the LLC membership interests;

• The corporate trustee handles trust administration, accounting, distributions, and liquid investments;

• The long-time business colleague serves as Business Trust Director for the landscaping LLC;

• The LLC’s managers continue running daily operations; and

• The trust agreement defines which decisions require direction from the Business Trust Director.

This allows the right person to make the right type of decision. The trustee does not need to become a landscaping expert. The Business Trust Director does not need to administer the entire trust. The company’s managers do not need to control the estate plan. Each role is separated.

Why Not Just Use Co-Trustees?

Some business owners consider naming multiple co-trustees. That can work in some situations, but it may also create confusion.

Co-trustees may each have fiduciary responsibilities across the entire trust. If one co-trustee is intended to handle business decisions and another is intended to handle financial administration, the trust must clearly explain how those responsibilities are divided.

Without careful drafting, co-trustee arrangements can lead to:

• Delays in decision-making;

• Disagreements over authority;

• Unclear liability;

• Administrative inefficiency;

• Duplicated responsibilities; and

• Confusion among beneficiaries, managers, banks, and business partners.

A Business Trust Director structure can be more precise. It allows the trust to say, in effect: “This person directs business governance decisions for this company, while the trustee handles the trust administration.” That clarity can be valuable when fast decisions are required.

Key Benefits for Business Owners

A properly structured Business Trust Director arrangement can offer several advantages.

1. Specialized decision-making

Business governance decisions can be made by someone with relevant knowledge, experience, and judgment.

2. Continuity during incapacity

If the owner becomes incapacitated, the trust can provide a pre-planned decision-making structure without waiting for a guardianship or court intervention.

3. Smoother transition at death

The owner’s death does not have to create uncertainty about who can vote ownership interests or approve major company decisions.

4. Reduced burden on family members

Family members may benefit from the trust without being forced to manage or govern a company they do not understand.

5. Better fit for corporate trustees

A corporate trustee may be willing to administer the trust if it is not required to make specialized business decisions outside its ordinary expertise.

6. Cleaner separation of roles

Ownership, governance, and management can each be assigned to the appropriate person or entity.

Important Drafting Considerations

A directed trust structure must be carefully drafted. The trust agreement should clearly define the Business Trust Director’s authority and limitations. Important questions include:

• Which business interests are subject to the Business Trust Director’s authority?

• What decisions can the Business Trust Director make?

• Which decisions remain with the trustee?

• Which decisions remain with company managers or officers?

• Is the Business Trust Director required to consult with anyone before acting?

• How is a successor Business Trust Director appointed?

• Can the Business Trust Director be removed, and by whom?

• Will the Business Trust Director receive compensation?

• What standard of care applies to the Business Trust Director?

• How does the trust interact with operating agreements, shareholder agreements, or buy-sell agreements?

• What happens if the Business Trust Director is unavailable or has a conflict of interest?

The trust should also be coordinated with the company’s governing documents. The operating agreement, company agreement, shareholder agreement, bylaws, and buy-sell provisions should not conflict with the trust structure.

This Strategy Is Not Limited to One Type of Business

A Business Trust Director may be useful for many closely held businesses, including:

• Family-owned LLCs;

• Professional practices;

• Construction companies;

• Landscaping and service businesses;

• Real estate development companies;

• Oil and gas entities;

• Ranching or agricultural businesses;

• Manufacturing companies;

• Investment entities; and

• Multi-entity business structures.

The more specialized the business, the more important it may be to separate business governance from ordinary trust administration.

The Bottom Line

A revocable living trust can be an effective estate planning tool for business owners, but operating businesses require more than standard trust administration.

Texas directed trust law allows a business owner to create a more tailored structure by appointing a Business Trust Director. This approach can separate:

• Ownership through the trust;

• Governance through the Business Trust Director; and

• Daily operations through the company’s managers or officers.

For business owners with complex or specialized companies, this structure can provide continuity, reduce confusion, and help ensure that major business decisions are made by people with the appropriate expertise.