Trustee Decision Making for Operating Businesses

Schedule a Consultation

Running a business inside a trust is not a simple task. When a business becomes a trust asset, the trustee steps into a role that goes far beyond managing stocks or real estate. The trustee must make real, day-to-day decisions that affect employees, customers, and the people who will one day inherit the business. At Slowik Estate Planning, located in Atlanta, Georgia, we help business owners and trustees understand exactly what the law requires, and we help you build a plan that works. This page covers what you need to know about trustee decision making for operating businesses in Georgia.

Table of Contents

What Does a Trustee Actually Do With a Business?

When a trust holds a business, the trustee becomes responsible for that business. That means the trustee is not just watching over a bank account. The trustee is making real management calls. Should the business hire a new manager? Should it take on debt? Should it sell a division or expand into a new market? These are the kinds of questions a trustee faces.

Under the Revised Georgia Trust Code of 2010, found in O.C.G.A. Title 53, Chapter 12, a trustee has broad powers to manage business interests held in trust. A trustee has the power, to the extent deemed necessary or advisable, to continue or participate in the operation of any business or other enterprise, whatever its form or organization, including the power to effect incorporation, dissolution, or other change in the form of the organization, to dispose of any interest or acquire the interest of others, to contribute or invest additional capital, and to determine whether liabilities incurred in the conduct of the business are chargeable to the business portion of the trust or to the trust as a whole.

That is a wide range of authority. But wide authority also means wide responsibility. The trustee can make these decisions, but every decision must still serve the trust beneficiaries. The trustee cannot use that authority to benefit themselves or to ignore what the trust document says. Every call the trustee makes is measured against one question: did this decision serve the best interests of the beneficiaries?

Think of it this way. Imagine a family-owned restaurant passes into a trust after the owner dies. The trustee now controls that restaurant. The trustee decides whether to keep the current manager, whether to open a second location, or whether to sell the business altogether. Each of those decisions carries legal weight. Getting it wrong can mean personal liability for the trustee. That is why understanding the law matters before you accept the role.

The Prudent Investor Standard and Business Decisions

Georgia law holds trustees to what is known as the prudent investor standard. This standard applies to all trust assets, including a business. A trustee shall invest and manage trust assets as a prudent investor would by considering the purposes, provisions, distribution requirements, and other circumstances of the trust. That sentence from O.C.G.A. § 53-12-340 sets the bar for every decision a trustee makes.

What does “prudent” mean when you are running a business? It means you look at the whole picture. Among the factors a trustee shall consider in investing and managing trust assets are general economic conditions, the possible effect of inflation or deflation, anticipated tax consequences, the attributes of the portfolio, the expected return from income and appreciation, needs for liquidity, regularity of income, and preservation or appreciation of capital. A trustee overseeing a business must weigh all of these factors, not just the current month’s revenue.

The law also says that in investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee. So if a trustee hires expensive consultants or takes on unnecessary overhead, that decision can be challenged by beneficiaries.

There is another important point. A trustee who has special investment skills or expertise shall have a duty to use those special skills or expertise. A trustee who is named trustee in reliance upon their representation that they have special investment skills or expertise shall be held liable for failure to make use of such degree of skill or expertise. So if you were chosen as trustee because of your business background, Georgia law expects you to use that background, not just show up and do the minimum.

Proper trust administration for a business requires ongoing attention. This is not a once-a-year task. The trustee must stay engaged, review financial statements, and make informed decisions on a regular basis.

Fiduciary Duties: Loyalty, Impartiality, and Good Faith

A trustee managing a business wears a fiduciary hat at all times. That is not just a legal phrase. It means the trustee is legally bound to put the interests of the beneficiaries ahead of their own. Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its provisions and purposes. That obligation starts the moment the trustee accepts the role.

The duty of loyalty is especially important when a business is involved. Can the trustee do business with the trust? Can a trustee hire a family member to run the company? Can the trustee buy the business for themselves? These situations create conflicts of interest. Georgia courts have taken these questions seriously. A jury question was presented as to whether two trustees acted against the interests of the beneficiaries in bad faith by amending a partnership agreement to concentrate all voting power in themselves to the exclusion of the beneficiaries. Likewise, the trustees as partners owed duties to the trusts as partners in the partnership. That case, Rollins v. Rollins, shows that Georgia courts will look hard at trustee decisions that benefit the trustee at the expense of the beneficiaries.

The duty of impartiality also matters. A trust may have current beneficiaries who receive income from the business and future beneficiaries who will eventually receive the principal. The trustee must balance both groups. Decisions that maximize short-term income might harm the long-term value of the business, and vice versa.

Good faith is the thread that runs through all of these duties. A fiduciary’s decision shall be conclusive between the fiduciary and the beneficiaries in the absence of fraud, bad faith, or gross negligence of the fiduciary. So a trustee who acts in good faith, documents their reasoning, and follows the trust document will have strong protection. A trustee who acts carelessly, or worse, selfishly, will not.

If you are a trustee of a business-holding trust, or if you are a business owner setting up a trust, working with an experienced attorney is a smart move. Slowik Estate Planning serves clients throughout Atlanta and the surrounding area, and we can help you understand exactly what your duties require.

Liability for Breach of Trust and How to Protect Yourself

What happens when a trustee makes a bad business decision? Georgia law provides a clear answer. Under O.C.G.A. Title 53, Chapter 12, Article 14, a trustee who breaches their duty can be held personally liable for losses to the trust. That means a trustee could owe money out of their own pocket if a court finds they mismanaged the business.

The Revised Georgia Trust Code also sets out time limits for bringing claims. If a beneficiary has received a written report that adequately discloses the existence of a claim against the trustee for a breach of trust, the claim shall be barred unless a proceeding is commenced within two years after receipt of the report. A report adequately discloses the existence of a claim if it provides sufficient information so that the beneficiary knows of such claim or reasonably should have inquired into the existence of such claim. This is why clear and regular reporting to beneficiaries is so important for trustees managing a business.

So how does a trustee protect themselves? Documentation is the first step. Keep records of every major decision. Write down why you made each call and what information you relied on. A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets. That means doing your homework before you act.

Hiring professionals also helps. A trustee may employ and compensate, out of income or principal or both, persons deemed needful to advise or assist in the administration of the trust, including agents, accountants, brokers, attorneys at law, investment brokers, and tax specialists, without liability for any neglect, omission, misconduct, or default of any such agent or representative selected and retained with due care. So bringing in a CPA, a business attorney, or a financial advisor is not a sign of weakness. It is smart fiduciary practice.

If you are setting up a trust to hold your business, make sure your wills and trust documents clearly spell out the trustee’s powers and limits. Vague trust language creates disputes. Clear language prevents them.

Planning Ahead: Structuring a Trust to Hold Your Atlanta Business

If you own a business in Atlanta and want to pass it on through a trust, the planning stage is where everything gets decided. The trust document will define how much power the trustee has, what decisions require beneficiary consent, and what happens if the trustee wants to sell the business. Getting this right requires careful thought and solid legal drafting.

One key decision is choosing the right trustee. Family members often seem like the natural choice, but running a business requires real management skills. A family member with no business background may struggle with the responsibility. A professional trustee or a corporate trustee may be a better fit for complex business interests. You can also name co-trustees, one family member and one professional, to balance personal knowledge with business skill.

Tax planning is also a major part of the picture. Under IRS Revenue Ruling 2023-2, if you transfer a business interest into an irrevocable trust and the trust assets are not included in your taxable estate at death, those assets will not receive a stepped-up basis at your death. That can create significant capital gains tax exposure for beneficiaries when the business is eventually sold. This is an important reason to coordinate your trust structure with a tax-aware estate planning attorney before you act.

For business owners with international ties, there are additional layers to consider. Trusts that hold interests in foreign businesses or that have beneficiaries overseas require careful attention to both U.S. and foreign law. International Estate Planning is a distinct area that requires its own analysis, and Slowik Estate Planning can help you think through those issues.

Some business owners also use trusts for other unique assets connected to their estate plan. For example, if your estate plan includes provisions for beloved pets, pet guardianships and pet trusts can be part of a broader plan that also covers your business interests. A complete estate plan looks at everything you own and everyone you care for.

Slowik Estate Planning is a law firm based in Atlanta, Georgia. We work with business owners, trustees, and families to build estate plans that actually work. If you are ready to talk about how to protect your business and your family, contact us today. Prior results in other matters do not guarantee a similar outcome in your case.

FAQs About Trustee Decision Making for Operating Businesses in Atlanta, Georgia

Can a trustee sell a business that is held in a trust?

Yes. Under O.C.G.A. § 53-12-261(b), a trustee of an express trust has the authority to sell, exchange, or otherwise dispose of any property held in the trust, including a business interest, without court authorization. However, the trustee must still act in the best interests of the beneficiaries and in accordance with the terms of the trust document. If the trust document restricts or conditions a sale, the trustee must follow those terms. Documenting the reasoning behind a sale decision is always a good practice to protect against later claims by beneficiaries.

What happens if a trustee makes a bad business decision that costs the trust money?

A trustee who breaches their fiduciary duty can be held personally liable for losses to the trust under O.C.G.A. Title 53, Chapter 12, Article 14. Not every bad outcome means the trustee is liable. The question is whether the trustee acted as a prudent person would under the circumstances. If the trustee followed a reasonable process, gathered information, consulted professionals, and documented their reasoning, they have a strong defense. If the trustee acted carelessly, ignored obvious risks, or acted in their own self-interest, they face real exposure. Beneficiaries generally have two to six years to bring a claim, depending on whether they received adequate written disclosure of the issue.

Does a trustee have to keep running a business, or can they wind it down?

Georgia law gives a trustee flexibility here. Under O.C.G.A. § 53-12-261, a trustee has the power to continue or participate in the operation of a business, but also has the power to effect dissolution or other changes in the form of the organization. The trustee must weigh the costs and risks of continuing to operate the business against the potential benefits to beneficiaries. If the business is losing money and there is no realistic path to profitability, winding it down may be the prudent choice. If the business is profitable and central to the trust’s purpose, continuing it is likely the right call. The trust document may also provide specific guidance on this question.

Can a trustee hire a family member to manage the business held in trust?

A trustee can hire professionals to assist with managing a business, and that can include a family member if that person is genuinely qualified for the role. However, the trustee must be careful about conflicts of interest. Any arrangement that benefits the trustee or their family at the expense of the trust beneficiaries can be challenged as a breach of the duty of loyalty. The trustee should make sure any compensation paid to a family member is reasonable and market-based, and should document why that person was selected. When in doubt, getting independent legal advice before making such a hire is a smart step.

How does IRS Revenue Ruling 2023-2 affect a business held in an irrevocable trust?

IRS Revenue Ruling 2023-2 clarifies that assets held in an irrevocable trust that are not included in the grantor’s taxable estate at death do not receive a stepped-up cost basis under Internal Revenue Code § 1014. For a business held in this type of trust, this means that when the trustee eventually sells the business, the tax basis will be the original cost basis, not the fair market value at the time of the grantor’s death. That can result in a much larger capital gains tax bill for the trust or its beneficiaries. This makes careful tax planning essential when structuring a trust to hold a business. Coordinating your trust structure with an estate planning attorney who understands both Georgia trust law and federal tax rules is critical before you fund the trust.

More Resources About Trusts for Business Owners

Services

All Services

Testimonials

Jake is a person who really cares about his work. Can't recommend him enough and definitely telling my friends and family about his services.

- Catherine B.