Ohio Family Trust Company’s Educational Series – Issue 5

It’s time for the fifth installment in CLS Consulting LLC’s email series regarding the Ohio Family Trust Company Act. This installment will focus on one of the key advantages of forming a family trust company (an “FTC”) – the ability for families to remain involved in and maintain control over the family business from a shareholder perspective while also preparing for the future of both the family and its business.  The formation of an FTC can help families achieve this delicate balance between the present and future by providing a flexible and adaptable structure allowing family participation at the FTC Board and Committee level. This flexibility permits individual family members to decide whether they want to remain actively involved in shareholder decisions in the family business or to choose passive involvement while having an economic benefit in the family business.  And, moreover, it can do so while insulating family advisors and family members from personal fiduciary liability.

The primary means by which family members – even if a grantor or beneficiary of a trust under the management of the FTC – remain involved in the family business shareholder decisions after the formation of an FTC is by serving as members of the FTC’s Board of Directors and/or Committees.  Family members can serve on various committees which are created depending upon the specific needs identified during formation of the FTC.  FTC Committees can include, but aren’t limited to, Investment Committee, Trust Committee, Education Committee and Discretionary Distribution Committee.  The primary limitation here is that a family member cannot serve on a committee involved in making certain discretionary distributions.  Family members may also choose to select trusted family advisors to serve on the FTC’s Board of Directors or Committees based on their expertise.  Therefore, an FTC’s Board and Committees can be comprised of individuals who understand the family, its history and vision for the future.  All of these individuals can ensure that family values and goals not only influence, but are part of the decision-making process of the FTC.

Retaining control over the family business through an FTC also benefits families interested in keeping the family cohesive and working together across generations.  An FTC creates opportunities for development and control over implementation of family strategic places – particularly wealth strategy.  An FTC can provide educational opportunities for all family members including the rising generation and can offer engagement opportunities for a wider number of family members regardless of whether they are actively involved in the operational aspects of the family business. 

From a Case Study perspective, families frequently would like to vest shareholder decisions in a smaller group of family members and/or trusted advisors that has the understanding and expertise to make shareholder decisions.  For example, an important shareholder decision revolves around electing the Board of Directors of the operating entity. An FTC can create a Committee focused on the family business asset while having a separate Committee to oversee the investing of liquid assets.  The expertise required for each Committee differs allowing the family to focus their energies where best suited.  Creating job descriptions for the various positions in the FTC clearly outlines the required experience as well as characteristics that are important to the family – for decision making and perpetuating the family values across future generations.  This transparency can also promote family harmony when family members are clear on the expectations for various roles of the family members.