How to Manage Small Business Stocks for a Trust
7 of 7 in Series: The Essentials of Holding and Diversifying Trust Assets
Whether a trust receives small business stock during the grantor’s lifetime or as part of the decedent’s estate rolled into the trust after death, you may find yourself holding a substantial interest in a small business on behalf of the trust. The trust’s grantor has hopefully prepared you for the receipt of this stock. Perhaps the trust’s share of the stock is part of the greater plan to transfer ownership to the next generation. Or you may have instructions to sell the stock.
If you, as trustee, find yourself holding shares in a small business, you’re not only allowed to participate in the business, but you’re also somewhat required to. Even if you don’t want to be involved in the day-to-day running, don’t be shy about asking to see financial reports and any other information the other owners may have regarding the company.
One of your duties as trustee is to protect and conserve the assets of the trust. Even if you’re not in a position to man the store, be an active player in what goes on behind the scenes. Otherwise, you’ll have a difficult time justifying your care of the trust assets to the beneficiaries and/or remaindermen should the company go bankrupt.
If the company in question is an S Corporation, be sure that the trust is eligible to be an S Corporation shareholder. If you’re not sure, seek advice. Making a mistake here may have disastrous consequences not only for the trust but also for the corporation.