A trust can be a useful tool for a family business to organize ownership, facilitate succession, and provide continuity to certain principles defined by the family across generations.
Although trusts are often considered from a legal, tax, or wealth structuring perspective, they can also be viewed through the lens of family governance: how ownership is organized, who makes decisions, and which rules should remain in place as generations change.
What is a trust?
A trust is a legal arrangement through which certain assets or rights are allocated to a lawful and specific purpose, with their ownership or administration entrusted to a fiduciary institution under previously established rules, for the benefit of one or more individuals or to fulfill the intended purpose.
In countries such as Mexico, this legal structure provides a framework for managing assets and rights. Other jurisdictions have mechanisms that may serve similar purposes, such as trusts in common law systems. However, these structures are not legally equivalent, as their establishment, operation, and implications depend on the applicable legal framework.
For business-owning families, a trust can serve a purpose beyond simply holding assets. It can help organize the ownership and management of business interests and other family assets, while establishing a framework that supports the continuity of family wealth across generations.
Trusts, governance, and generational continuity
As a business family grows, so does its complexity. Ownership may become distributed among more family members, and responsibilities that were once concentrated in one person begin to separate: owning the business, managing it, and making decisions about the family’s wealth.
This type of structure can help organize ownership and establish rules governing the management of certain assets, although its suitability will depend on each family’s needs and the applicable legal framework. However, a legal structure alone cannot guarantee continuity.
Before considering one, a family should address deeper questions: What does it want to preserve? How does it want to exercise ownership? What role will future generations play? And how should decisions be made in the future?
A trust does not replace family governance
A structure can establish rules for certain assets or business interests, but it cannot replace the decisions a family needs to make about its future.
Before incorporating certain decisions into this arrangement, the family should define what it wants to preserve, how it intends to exercise ownership, and what role future generations will play.
For this reason, a trust should be viewed as one tool within a broader governance ecosystem. This may include family and ownership governance bodies, family protocols and agreements, shareholder agreements, corporate structures, and other oversight mechanisms.
Each element serves a different purpose, but all should reflect a shared vision of the relationship between the family, the business, and its wealth.
Trusts in Mexico and family businesses
In Mexico, these arrangements are regulated by the General Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito) and can be used to organize certain assets, business interests, and other elements of family wealth according to predetermined rules. In the context of a family business, a trust can form part of a broader approach to continuity, succession, and governance.
Its suitability should be assessed on a case-by-case basis, taking into account the family’s objectives, the nature and location of its assets, its needs for control and flexibility, and the applicable legal framework. Any decision regarding its implementation should be supported by an assessment from the appropriate legal and tax specialists.
“It can help ensure the continuity of family agreements, but it cannot replace the process through which those agreements are reached.”
What should a business-owning family consider before establishing a trust?
Before establishing this structure, a business-owning family should define what it wants to achieve and how the arrangement will fit within its broader governance framework. Key questions to consider include:
- Which assets or business interests could be included in the structure?
- What long-term objective is the family seeking to achieve?
- Who should make certain decisions?
- What role will future generations play?
- How will this vehicle interact with the family’s governance bodies?
- How much flexibility will be needed over time?
In our Insight, we explore these questions in greater depth and examine trusts from the perspective of ownership, governance, and generational continuity, beyond their legal and tax implications.
Download the full Insight: “What are trusts and how do they support generational continuity?”
At Family Enterprise Partners, we advise business families and high-net-worth individuals on family governance, wealth management and protection, and generational continuity.