Various aspects of the Trust as a Family Holding Structure

Various aspects of the Trust as a Family Holding Structure

Various aspects of the Trust as a Family Holding Structure

A trust can provide a very good solution for the long term holding and preservation of family wealth. Trusts have been used for generations for the holding and preservation of family wealth.  A Trust can arise in several ways, but the most usual in the context of family wealth is either by virtue of the lifetime act of an individual, or by virtue of provisions left by an individual under his will, and so coming into effect upon his death. 

Family office

Trustees in many cases effectively function as a family office, looking after the family’s wealth, and being involved in many aspects of the lives of the family members. A professional trustee will very likely have its own internal capacity to provide many additional levels of service beyond pure trusteeship as such.  Alternatively, trustees may choose to use outside service providers for different aspects, or they may seek to establish a family office company which they hold as part of the trust assets. Such a family office company can be self standing with its own management and employees, remunerated by fees charged to the various entities to which it provides its services. 

The advantage of the trust structure is that there is a trustee who is ultimately responsible for all aspects encompassed by the trust, and subject to the trustee operating properly in accordance with the governing trust instrument, decisions ultimately lie with the trustee which can help to minimise disputes and disagreements.  It does not mean that disputes and disagreements at family level will not arise, but a third party decision maker can often take the heat out of disputes and disagreements.

Privacy

Wealth is a privilege for those lucky enough to enjoy it, but it also brings burdens of varying degree and in various contexts.  While professional trustees in most places have to be regulated for prudential purposes, it is generally the case that details of particular trusts, their assets and beneficiaries remain matters that are private unlike, for example, in the case of companies where annual filings, including accounts, have become the norm. 

A particularly important point in this context is that where assets are put into trust during an individual’s lifetime, they will not need to go through the probate process at his death.  The probate procedure in most places involves an element of public information, generally including the terms of the will, and the value of assets covered by the grant of representation to the estate.  Using a trust may be able to assist in maintaining personal, commercial and financial security for a family and its businesses and other assets.

Claims by creditors and others

A trust may be of assistance against claims made against an individual by creditors and others, certainly against speculative claims which are essentially founded only in their nuisance value against a wealthy individual. This can include matrimonial and heirship claims, but as these are generally referable to statutory entitlements, the statute will generally override the ability, whether wholly or partly, to defeat such claims by putting assets in trust.  Cross border claims can bring their own issues in the sense of whether the courts of a country will strike down a trust which was legitimately created under its law, by reference to a matrimonial or heirship claim under the law of another country. 

While the position of the settlor of a trust is sometimes exposed in this manner, the position of the beneficiaries should generally be better.  As a beneficiary of a discretionary trust does not have any actual immediate interest in any trust assets, those assets cannot be actioned in respect of the beneficiary’s liabilities.  The most that might occur would be for a court to make an assumption in matrimonial proceedings, for example, that a beneficiary had a reasonable expectation of receiving benefits from the trust, and hence the assets might be notionally brought into account in the division of the individual’s own assets as between that beneficiary and the spouse of that beneficiary.

Beneficiaries

A trust exists for the benefit of the beneficiaries, but this does not mean that it must be divided up amongst the family members in the short term.  The maintenance of family wealth is generally a long term aspiration for the benefit of the current and also future generations of the family concerned.  This can enable the trustees to consider a policy suited to the nature of the trust assets, and the divergent competencies and characteristics of the beneficiaries from time to time. This is easier to deal with where the trust assets are comprised of portfolio type investments. 

The trustees in such circumstances have to manage a large pot of value and consider the manner in which it should be used to provide benefits to the beneficiaries.  It is obviously much more difficult to manage where the principal asset comprises an operating group of companies.  There will be tensions at beneficiary level between beneficiaries who might wish to manage some of the businesses and reap rewards in terms of ownership, and beneficiaries who feel they should be able to receive value from the trust, whether to establish alternative businesses or to engage in laudable, but less remunerative activities such as the arts of philanthropy

This is where competent professional trustees will need to draw on their experience, and to use their skills to reconcile such tensions.

Philanthropy

A trust can cater for a family’s philanthropic aspirations by including charities as potential beneficiaries. 

Settlor guidance on the nature of those aspirations will assist trustees in this context, or guidance from time to time from representatives of the main family branches.  Where the circumstances warrant it, the trustees may see fit to establish a separate charitable fund as a carve out from the main trust fund to facilitate separate management in order to focus on the specific charitable areas which they desire to benefit.

Conflicts of interest

Much of a trustee’s job is determining and balancing the conflicting interests of beneficiaries. Inevitably, on occasions, some beneficiaries will consider themselves losers in such conflicts, but provided the trustees have acted in accordance with the governing trust instrument and have properly considered all relevant matters, and not any that are not relevant, they should not be exposed to any sanction in respect of their decisions.

The position is very different where trustees may find themselves exposed to a personal conflict of interest with regard to their position as trustee.  Trustees must act for the benefit of the beneficiaries, and except for matters specifically permitted under the governing trust instrument, such as entitlement to remuneration for their trustee services, must endeavour to ensure that conflicts of interest do not arise. 

If a conflict of interest should arise, any loss to the trust fund occurring in consequence may be considered to be due to a breach of trust, in respect of which the trustee will be required to make good the loss to the trust fund. On the other hand, if a benefit should occur to the trust fund in course of a trustee conflict of interest, the trustee has no inherent entitlement to any additional remuneration as a result.

Trustee charges

As a relic of former times, trustees are generally not permitted to profit from their trusteeship unless appropriately authorised to do so by their trust instrument. Professional trustees are obviously not going to act without being able to charge their normal fees and so trust instruments invariably contain authorisation for trustee to be paid their normal level of fees.

Trustee Indemnity

Trustees have a general indemnity under law in respect of expenses incurred in the exercise of their trusts and powers, and they are entitled to pay or discharge such expenses out of the trust assets.  This will invariably be extended by more specific terms in trust instruments clarifying that trustee liability will be confined to loss caused by trustee’s wilful misconduct or wilful breach of trust.  This is necessary to enable trustees to act honestly and properly in circumstances which may result in certain beneficiaries feeling aggrieved.  Trustees indemnity clauses which seek to exculpate trustees for loss to the trust fund due to their negligence are generally unlikely to be upheld. https://www.linkedin.com/in/john-hickson-1b855b79/?originalSubdomain=ie

What do you need to know about Polish inheritance and donations tax?

What do you need to know about Polish inheritance and donations tax?

Under Polish inheritance and donations tax law, a private foundation or a trust could be tax efficient if the Polish beneficiary fulfills some requirements.

Does the private foundation or trust qualify for the tax-exempt status under Polish law?

Even though Polish legal system does not know the institution of a private foundation whose purpose is to manage assets to the benefit of private individuals, or the institution of trusts, it is possible to use either of them to avoid the tax on inheritance and donations on the part of a Polish beneficiary if he changes his tax residence into the place at which the funds received are exempt from taxation.

Inheritance and Donations Tax in Poland

The inheritance and donations tax is regulated by the Polish Law on Inheritance and Donation Tax dated July 28, 1983 (consolidated text: Journal of Laws of 2009 No 93, item. 768 as amended).

According to the above-mentioned Law, the acquisition of property located within the territory of Poland or of property rights exercised within the territory of Poland is subject to the inheritance and donations tax if such acquisition results from:

    • inheritance, normal provision, latter provision, specific bequest, testamentary mandate;
    • donation, benefactor’s mandate;
    • usucaption;
    • annulment of joint ownership without consideration;
    • compulsory portion of inheritance, if an eligible heir has not received it as a donation made by the bequeather, or in a way of succession, or provision;
    • allowance, usufruct or easement without consideration

An acquisition of property located abroad or of property rights exercised abroad is subject to taxation if the acquiring party is a Polish citizen or has a permanent place of residence within the territory of Poland at the moment the inheritance is opened or a deed of donation is entered into.

As a rule, the taxation basis is the value of acquired property and of property rights, after deduction of debts and burdens, determined according to the status of the property or of the property rights on the acquisition day, and the market prices of the day the tax obligation arises. If there is a property damage caused by force majeure prior to the income tax assessment, the assessment shall be made on the basis of the property condition as on the day the assessment is carried out, the insurance compensation for the damage being included in the assessment base.

The applicable tax free-amounts and tax rates depend upon the allocation of the beneficiaries to one of the respective “tax groups”, as defined below.

Tax groups, as set forth by the Polish Law on Inheritance and Donation Tax Law:

  • spouse, descendants, ascendants, stepchildren, son-in-law, daughter-in-law, step parents, parents-in-law;
  • 2nd Group – the siblings’ descendants, the parent’s siblings, the stepchildren’s descendants and spouses, the siblings and siblings of spouses’ spouses, the spouse’s siblings’ spouses, other descendants’ spouses;
  • 3rd Group – other acquiring parties, including unrelated parties.

An acquisition of property or of property rights by a spouse, descendants, ascendants, stepchildren, siblings, or parent-in-law, step parents (i.e. persons from the “1st tax group”, defined in detail below) is tax free, provided that:

  • the beneficiaries have reported the acquisition to the competent head of tax office within 6 months since the day the tax obligation has arisen, and especially in the case of acquisition by succession within the period of 6 months following the date at which the court decision stating the acquisition of inheritance became binding, and
  • in cases where the subject of acquisition from donation or upon donor’s instruction is money, and where the total value of the property acquired from the same person during the period of 5 years which precede the year of the most recent acquisition added to the value of the property and to the value of the property rights most recently acquired exceeds the respective tax-free amount, the beneficiaries evidenced the acquisition thereof with a proof of transfer to the acquiring party’s bank account or the acquiring party’s account kept by a savings and credit institution, or via postal order.

The above-mentioned obligation to report does not involve cases in which:

  • the total value of the property acquired from that person or inherited from that person during the past 5 years since the year of the last acquisition added to the value of the property and of the property rights acquired on the last order does not exceed the respective tax-free amount, or
  • the acquisition takes place on the basis of an agreement executed in the form of a notarial deed.

An acquisition of property and of property rights from one person is subject to taxation where the agreed value thereof exceeds:

  • PLN 9,637 – if the acquiring party is a person from the “1st tax group” (defined below);
  • PLN 7,276 – if the acquiring party is a person from the “2nd tax group” (defined below);
  • PLN 4,902 – if the acquiring party is a person from the “3rd tax group” (defined below); * 1

The excess amount constitutes the basis for the calculation of:

 

Excess amount in PLN:Amount of tax due in PLN:
1)     from the acquiring parties belonging to the “1st tax group”
up to 10,2783%
over 10,278up to 20,556308.30 and 5% of the amount exceeding PLN 10,278
over 20,556 822.20 and 7% of the amount exceeding PLN 20,556
2) from the acquiring parties belonging to the “2nd tax group”
 up to 10,2787%
over 10,278up to 20,556719.50 and 9% of the amount exceeding PLN 10,278
20,556 1,644.50 and 12% of the amount exceeding PLN 20,556
3) from the acquiring parties belonging to the 3rd tax group”
 up to 10,27812%
over 10,278up to 20,5561,233.40 and 16% of the amount exceeding PLN  10,278
over 20,556 2,877.90 and 20% of the amount exceeding PLN 20,556

 

Trusts and private foundations have been lately among those most desirable remedies against increasing taxation all over the world. It seems that the above-said institutions are the best legal options to avoid the uncomfortable burden. However, regarding Polish taxation reality, those legal options may only by profitable if a taxpayer changes his/her residence in order to decrease the tax obligations. When it comes to making a decision, for example, Switzerland is an excellent jurisdiction of choice not only because it is generally considered to be a tax-friendly country but also due to its political stability and the various tax exemptions or reductions available.

Trusts

A trust – a common law institution derived from the Middle Ages feudal system is a type of a tax entity created by an individual person, legal person or organisational unit without legal personality to protect or to preserve the assets, and to distribute income to beneficiaries. Trusts are created primarily either by means of trust clauses in a will, the so-called testamentary trust, or a written agreement between the founder and the trustees during the founder’s lifetime (inter vivos trust) to manage the assets with the necessary care, to the benefit of the trust beneficiaries. A trust seller (founder of trust) transfers assets to a selected trustee, which means that from the date of transfer on, due to the settlement, the trustee is responsible for managing the trust and is obliged to transfer profits to beneficiaries of any kind including the founder of the particular trust. Trusts encompass all types of estate – money, properties, tangible and intangible assets. Trusts are created not only as a strategy of estate protection from creditors but also for international financial planning and preserving the beneficiaries privacy as well as for concealing assets and protecting heirs one from another.

Private interest foundation

A private foundation has nearly nothing do with its Polish definition.  According to Polish law, private foundation may only be established to pillar upstanding goals, subordinate to public administration rather than the founder. A private interest foundation based on European civil law jurisdictions, is an interesting alternative to trusts. The private interest foundation registered as a legal personality  could be defined as a legal entity, formally constituted, to acquire a patrimony that should be managed and protected in accordance with the will of the founder. Private interest foundations are established mainly in Lichtenstein, Panama and Austria and The Netherlands. The foundation has beneficiaries who are ultimately entitled to the assets and income of the foundation. The creator of the foundation is allowed to steer the foundation by being appointed as a financial adviser or protector2. A private interest foundation is considered to be a very interesting finance-managing tool due to:

  • security,
  • favoured inheritance taxation,
  • profitable taxation of future gains from existing firms.

A contribution to the foundation does not mean that any shares or stocks will be accomplished. Therefore, all privileges are purely personal and neither the founder nor beneficiaries are submitted to execution.

The major difference between a foundation and a trust is that in the case of a foundation the legal owner of the foundation’s assets is the foundation itself, a separate legal entity (usually) based in a nil tax jurisdiction. This is different to the situation of a trust where the underling owners of trust assets are the (presently entitled) beneficiaries, which causes a significant impact in terms of tax liability.

It is important to note that the establishing of a foreign (i.e. non-Polish) private interest foundation is not beneficial to Polish residents from a purely tax perspective, as any benefits paid out to the Polish resident would be qualified as a benefit obtained from an unrelated party, thus falling into the 3rd tax group, mentioned above. As a result, any payment from such source would fall under the progressive taxation, reaching up to 20%. However, such a foreign private interest foundation may be used if other, non-tax-related considerations are of prime importance for the interested parties, or of the future beneficiaries would consider change of their tax residence prior to obtaining of any payments.

Lump sum taxation

As already mentioned, trusts and private interest foundations may only be profitable to Polish taxpayers considering future change of their tax residence. The noticeable solutions in tax optimization for individuals with high income is a lump-sum taxation regime in Switzerland, which may be chosen instead of the normal progressive income tax. Foreigners with absence of more than 10 years or who take up residence in Switzerland for the very first time, and do not carry out any profitable activity in this country, will be deemed eligible to taxation under this special regime, also called forfait fiscal (French) or Pauschalbesteuerung (German). Several Swiss cantons have unofficial minimums fixed for the taxable income before they grant particular residence, which as a rule, is not less than CHF 150,000 a year to be eligible. As part of the fiscal arrangement between the taxpayer and authorities of the taxpayer’s residing canton, particular taxpayers indicate the costs of living expenses and then individually negotiate the amount of tax to be paid. However, it is common that the tax amount is usually the quintuple of the annual housing rent value paid by the taxpayer. Moreover, the advantage of the lump sum taxation is that there is no obligation to disclose the actual amount of income or the value of property owned by such a taxpayer to the Swiss fiscal authorities. Since the Swiss legislation imposes limitation to minimum tax amount, the attractiveness of the lump sum taxation might be appreciated by taxpayers receiving high income from non-Swiss sources. https://gessel.pl/en/in-memoriam-dr-janusz-fiszer-2/

  1. currently EUR 1 = approx. PLN 4.2[]
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Divorce, Trusts and Estate Planning

Divorce, Trusts and Estate Planning

In terms of South African statutory provisions, trust assets vest in a trustee of a trust in his/her capacity as trustee – held separately from his/her personal estate. In divorce matters, in particular where one deals with larger estates, we often find that some, or all, matrimonial assets are held in trusts, created for estate planning purposes or for tax purposes.  It is however not unusual for the only substantial asset, such as the matrimonial home, to have been placed in trust by one of the spouses during the course of the marriage.

Usually the children of the parties will be the beneficiaries and one of the parties the trustee together with an accountant.  Often, the party/spouse who has created the trust will ensure that he/she retains effective control of the trust assets and controls the decision-making process of the trust.  This is done by, for example, retaining the power to remove and substitute trustees.

The “sting in the tail” when using trusts as your alter ego

Commercially, using a trust merely to protect or shield assets from creditors in your estate invites risks of a court finding that the trust was used as the founder’s alter ego. In such an instance, and in order to satisfy the claim of creditors, a court may declare the assets held in a trust to be the personal assets of the founder of the trust, thereby exposing the assets to attachment and rendering the assets executable. [(First National Bank v Britz and Others 1 ZAGPPHC 119; 54742/09 (20 July 2011)].

The leading South African case on the subject of “lifting the corporate veil” in a commercial context is Cape Pacific Limited v Lubner Controlling Investment (Pty) Limited & Others 1995 (4) SA 790 (A).  While in commercial cases it seems clear that our courts in certain circumstances are prepared to look at the substance of commercial entities and not merely their form, the corporate veil is, on the facts, rarely lifted.

In a Divorce context

In the divorce context, the approach of our courts has been similarly conservative, and the courts will not readily assail trust assets when dividing or distributing matrimonial assets.  On the other hand, there are instances where interests in trusts are taken into account without the necessity of lifting the trust veil.

Trust assets in South African law

There are no express specific statutory provisions which allow courts in South Africa to automatically treat trust assets as matrimonial assets in a divorce context or for that matter to make orders against a trust to transfer trust assets to a spouse.  The question which arises is: how to deal with a spouse’s interest in a trust when dividing the matrimonial assets or in the context of determining a maintenance claim?

Broadly, trust assets in South African law can be taken into account in certain instances such as where the trust is a sham and it is proved that the trust is not a genuine arm’s length entity, where a spouse has a claim for a redistribution of assets in terms of S7(3) of the Divorce Act 70 of 1979, or where the spouse has a claim against the trust as a loan creditor. A spouse’s interest in a genuine trust may also be relevant in determining a maintenance claim.

In the judgment of Badenhorst v Badenhorst (07/2005) 2 ZASCA 116; 3 2 ALL SA 363 (SCA) (29 November 2005), the rule was laid down that in order to succeed with a claim that trust assets are to be included in a party’s personal estate, it must be proved that such a person actually controlled the trust and, but for the trust, would have acquired and owned the relevant assets in his or her own name.

The control which is exercised by the party must be de facto (in practice) and not de iure (in law).  In order to determine whether a party has de facto control, it is necessary to have regard to the terms of the trust deed and also to consider evidence of how the affairs of the trust were conducted and managed historically.  Accordingly, it may be easier to challenge the authenticity of a trust which was established by a spouse to frustrate the other spouse’s claim in circumstances where a divorce is pending or is contemplated.

It will be more difficult to challenge the genuineness of the trust there the trust was established during the course of the marriage well before the parties contemplated divorce proceedings for estate duty planning purposes or for tax purposes.

The provisions of the trust deed and an examination of past financial transactions of the trust, how the trust was conducted and managed, and determining whether the spouse in effect treated the trust assets as his own – with complete control over the assets – is essential.

In maintenance enquiries, income derived from a trust entity by a party, can be taken into account as part of a spouse’s resources.  It would be necessary to prove that the relevant spouse, historically, had access to capital and/or income from the trust.

In the unreported decision of Senior v Senior WLD Case Nol 98/22297 it was held that when making an order for personal maintenance it would be “proper and realistic to take into account all the parties’ resources, including the potential ability to receive or the likelihood of the receipt of benefits from discretionary family trusts.”
https://www.mdtcinc.co.za/yumna-mookrey/

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What you need to know about setting up an Anguilla Foundation

What you need to know about setting up an Anguilla Foundation

Setting up an Anguilla Foundation is almost as simple as creating an Anguilla Trust, with only a few more formalities for compliance purposes, but essentially not difficult. An Anguilla foundation is established by a natural or legal person making a declaration of establishment in writing, or by a single founder by will, and an initial property endowment of atleast US$10,000.

Anguilla Trusts

The procedure for creating an Anguilla trust is simplicity itself and no different from the procedure for doing so in many Common Law jurisdictions. All that is required is the execution of a trust instrument appointing the trustee(s) and setting out the terms of the trust, coupled with the payment or transfer of a fund (which may be no more than nominal at the outset) to the trustee(s). There are no other formalities.

Setting up an Anguilla Foundation

The establishment of an Anguilla Foundation entails compliance with rather more formalities, but is essentially not difficult.

An Anguilla foundation is established by a natural or legal person making a declaration of establishment in writing, or by a single founder by will, and an initial property endowment of at least US$10,000. There is no requirement for separate articles of the foundation but provisions not required to be included in the declaration of establishment may optionally be included in separate articles or in the by-laws.

A foundation may also have separate by-laws, but their contents are not prescribed. They may be adapted to requirements and deal with any lawful matter compatible with the purposes of the Foundation.

The name of a foundation must end with the word “Foundation” or its abbreviation “Fdn.”, or the foreign language equivalent of the word “Foundation” or its recognised abbreviation in that language. It must not be the same as or similar to the name of any other legal entity registered, deposited or reserved under the laws of Anguilla unless such other legal entity consents in writing to the use of that name. And it must not be a name prohibited by regulations made under the Anguilla Foundation Act or any other law in force in Anguilla.

An Anguilla Foundation must either be registered (which renders it public) or deposited (which maintains its confidentiality). Anguilla Foundations established for estate planning and/or asset protection purposes will normally be deposited, unless they have a commercial purpose, in which case they are required to be registered. The Registrar (who is also the Registrar of Companies) maintains the Register of Foundations.

In the case of a registered foundation, if the Registrar is satisfied that all the requirements of the Act have been complied with, he registers the declaration of establishment, allocates to the foundation a registration number and issues to the registered agent a certificate of registration in respect of the foundation stating the date of registration of the foundation, the name of the foundation and its registration number.

If the Foundation Council has decided not to register the foundation (which is not an option if the foundation has a commercial purpose), the declaration of establishment of the foundation must be deposited with the Registrar, together with the prescribed fees. If the Registrar is satisfied that all the requirements of the Act have been complied with, the Registrar will allocate a deposit number to the foundation and issue to the registered agent a certificate of deposit. In the case of a deposited foundation, the Registrar may only disclose information concerning the foundation in very limited circumstances.

There is no requirement that any member of the Foundation Council must be resident in Anguilla, but if there is no resident member then the foundation must have a Secretary who is a resident registered person.
A foundation only acquires its legal personality and its validity and enforceability once it has been either registered or deposited.

Pros and Cons

If a foundation is the appropriate vehicle through which to achieve a particular objective, the formalities entailed in its establishment are unlikely to be a deterrent; indeed they should engender confidence in the process. One of the more innovative aspects of the Act is that the founder of an Anguilla Foundation may choose between registration or deposit of his foundation. This concept has, until now, been the exclusive preserve of Liechtenstein and one of the main factors responsible for the great success of the Liechtenstein family foundation. As mentioned, however, registration or deposit is a precondition to the validity and enforceability of the Anguilla Foundation.

It should be borne in mind, in the context of the formalities for the formation of Anguilla Foundations, that the procedures for the establishment of Anguilla Foundations can also be used for the purpose of converting trusts, formed either in Anguilla or elsewhere, to foundations. Furthermore, foundations already established outside Anguilla can be migrated or “continued” into Anguilla as Anguilla Foundations and Anguilla Foundations can be continued into a foreign jurisdiction as foundations subject to the laws of the new host jurisdiction. https://www.websterlawbwi.com/

Harry Wiggin

Harry Wiggin

Webster Law
Family governance: charities, philanthropy, education and family offices

Family governance: charities, philanthropy, education and family offices

Family Governance is how families make decisions together. If they create a good system, i.e. one that includes transparency, accountability and participation—they should be able to avoid the family fights that often occur in inheritance-related disputes. The process the family follows in creating a good governance system is easy to understand but requires the commitment of all family members. By simply going through a good process to create documents like a Family Constitution or a Family Mission, the family is at the same time practicing good governance in a “hands-on” practical manner. This article includes “how to” create a good family governance system.

Why do wealthy families have such public fights about inheritance issues? How can they avoid them? How can creating a good family governance system help?

Charities, philanthropy, education, family offices and good Family Governance

  • Family Charities and Philanthropy. Many families are involved in charities that are important to the family. Sometimes these are areas of concern that pull the family together; sometimes these are actual operating family charities. These can also be included in a Family Constitution. Some examples include:
    • Agreeing on annual grants from the family charity to direct needs
    • Creating and supporting an orphanage, a business school, a mosque, etc.
    • Working through “RFP”s (request for proposals) to ask direct charities what they would do if they received a grant of a specific amount.
    • Creating a “younger generation” group that would be authorized to agree on and distribute a certain amount each year.
    • Include an investment committee that would provide oversight to ensure that the investment funds being held for charity would include restrictions on the permitted investments that would be aligned with the family’s values.
  • Family Education Oversight. In looking ahead to the future many families decide that the quality of education of all of the young family members will be a critical factor in the long-term success of the family. Those families have included in the Family Constitution an obligation to oversee the education of all family members. Some create specific education modules that are designed to make the younger family members future owners with a strong knowledge base in the areas of concern to the family (this could be only investment skills or could include an understanding of the family business.)
  • Creation and Operation of one or more Offshore Trusts. Many families decide that they want to separate out some “safety” amount of the family wealth to set aside for any unforeseen needs of the family. A trust is often the ideal arrangement to use, and to diversify any economic or political risks, these trusts are usually set up in an off-shore jurisdiction. The terms of the trust can usually be written to cover any of the specific needs the family wants to provide for. For example, many families are concerned about potential uninsured catastrophic health care costs. Sometimes the trust is to be available for starting a business or buying a home.
  • Creation of a Private Trust Company. Whenever a family has a substantial number of trusts the issue of selecting the right trustee (or trustees) is often difficult. Several states in the United States have passed very friendly laws for families to create their own trust companies. Those trust companies can then serve as trustee of the family trusts (and the family owns the trust company.) In some cases the family trust company will partner with a large institution to provide the back office administrative and regulatory services. Several off-shore jurisdictions also have laws that welcome private trust companies.
  • Establishing and Operating a Private Family Office. When a family decides it has needs that justify hiring dedicated staff employees to serve those needs, it often decides to create its own “family office.” The provisions about the family office would be very much tailored to the needs of the individual family. They might include:
    • Individual budget reviews
    • Payment of all bills
    • Hiring and supervising household staff
    • Maintaining additional homes, yachts, aircraft, etc.
    • Curating any special collections
    • Obtaining appropriate risk coverage
    • Putting in place emergency provisions (including kidnap protocols)
    • Coordinating trusts and wills
    • Overseeing the operation of any family charities
    • Ensuring that appropriate tax planning is always in place
    • Overseeing the investment of liquid portfolios (in some cases this is the only function of the family office, in which case they are more accurately referred to as private investment firms.)
  • Family Venture Funds Most families received the family wealth historically from an entrepreneurial business venture. With a concerned eye on the negative “shirtsleeves to shirtsleeves in three generations” proverb, many families are working proactively to instill and encourage that original entrepreneurial spirit. One way to do that is to create a Family Venture Fund, which might include the following:
    • A fund from the family wealth is set aside to be used for new entrepreneurial projects.
    • A family member would present a proposal, with a complete business plan, to the committee in charge of approving proposals.
    • The approval committee could include a non-family member with experience in the particular field involved in a proposal.
    • The committee could require a pay-back schedule.
    • The funding could be as an ownership investment, a loan, or a gift.
    • If it is funded as an ownership interest, the family will have one more common asset to tie them together.
    • On-going monitoring is usually included (part of “accountability”).
  • Annual Family Gatherings. Finally, for the family to stay strong and connected to each other, they need to be with each other. Most families who work on family governance include a provision for annual gatherings. The annual gatherings can include:
    • Celebrations of family milestones (anniversaries, graduations, public recognition, etc.)
    • Fun team-building activities (river rafting, mountain climbing, camping, group cooking, fishing, etc.)
    • Educational programs, about the family business or investment topics or professional skills building
    • Reports on the operation of the family business, family investments and any family charities.
    • Family stories and family history presentations
    • Creation of a family history book
    • Talent shows by family members

How can family a succeed?

• By creating a tailored family governance system.
• Family governance can take many forms—go ahead and be creative.
• The key is to include and respect all family members in creating a system for family decisions.
• With “transparency”, “accountability” and “participation” a family’s governance system should result in multi-generational success and continuation. (end of 4th article?) https://www.brhauser.com/