Ohio Trust Company Educational Series – Issue Eight

Welcome to the final edition of the Ohio Trust Company Educational Series.  We hope that you have found this series to be not only educational, but also a helpful tool in determining whether a private family trust company is right for any of your clients. While this is the final installment, CLS Consulting will continue to provide you with information and updates as necessary and appropriate throughout the year.  Additionally, please do not hesitate to contact CLS Consulting with any questions at any time.  This last edition will put forth a final case study that exemplifies again how an FTC can be a viable solution for an owner of a privately held company with the desire of passing it on to future generations. The perspective in this case study will be from a first generation family member.     

Ed is the first generation wealth creator.  He is the sole owner of a successful business.  Ed is divorced with two minor children – Jennifer and Andy.  One of the things that keeps Ed ‘up at night’ is who will help guide his children and oversee their interest in the business in the future, or if he untimely passes away.  The children’s mother isn’t a viable option to serve in this role and Ed wants to ensure Jennifer and Andy would have guidance plus the business would be able to continue to flourish.  Ed has already turned over the day-to-day management of the company so his primary concern is the oversight of the shares he has already placed in dynasty trusts for the benefit of his lineal descendants.  He has a passion for the business and believes it will continue to grow for years to come.  Part of his concern is who would continue to be the shareholder ‘voice’ as well as ensure the company focus is maintained and the shares continue to be held for the benefit of his lineal descendants. 

In considering his desires and his estate planning objectives, Ed explored many options for successor trustees of the trusts set up for his lineal descendants.  He has surrounded himself with trusted advisors today but was concerned about future advisors.  After seriously considering a corporate trustee option as well as continuing with individual trustees, Ed determined that an Ohio family trust company provided him with the best solution for his objectives. 

Ed created an Ohio unlicensed family trust company to be the trustee of the trusts he created for his lineal descendants.  For the Board of the family trust company, he selected two of his trusted advisors as well as himself to serve.  The committees of the family trust company are also populated by trusted advisors.  To work with Jennifer and Andy, the family trust company has an Education Committee responsible for providing a wide range of education – from financial education to a wellness focus to understanding capitalism.   Ed was very specific about the topics he wanted covered with his children should he not be here to provide this education himself. 

Although the intention is for Ed to be very involved with the family trust company during his lifetime, Ed wanted to ensure Jennifer and Andy were surrounded by the ‘right’ advisors should Ed be unable to continue to select the advisors.  To accomplish this objective, detailed job descriptions were created for all of the positions at the family trust company.  Ed thoughtfully communicated the criteria for the advisors serving in the various roles from required experience to preferred criteria, Ed was able to outline that guidance for the future.  He also considered at what ages and to what extent he would like Jennifer and Andy to participate in the selection of directors of the family trust company or have the option of serving themselves as directors.  With the family trust company structure in place, Ed can now ‘sleep more easily.’ 

This case study demonstrates the new trend in establishing family trust companies at the first or second generation. Historically, many families waited until the third generation to consider creating a family trust company.  However, by the third generation, there are many more individuals (both family members and spouses) involved so creating consensus can be much more difficult.  Truly visionary first and second generation family members are now looking to establish a family trust companies as a way to keep the family together and the family business privately held across generations.