Here Comes the Cousin Consortium (the third generation)

Motivation for setting up the FTC: Control of the family wealth strategy over MANY trusts with trustee succession issues.

By the time a family matures to the third generation, it is sometimes called the cousin consortium, as wealth flows to the next generation of family members beyond the siblings. How siblings may have been comfortable overseeing the family wealth may not be the same way cousins—who don’t know each other as well and are geographically dispersed with differing financial situations—are comfortable managing the family wealth. Also, by the third generation, it is not uncommon for there to be numerous trusts holding the family wealth, with most family-business ownership based on beneficial ownership in trusts instead of outright, direct ownership.

This family has a significant number of legacy trusts. Before setting up an Ohio unlicensed Family Trust Company (FTC), the siblings were acting as individual trustees of each other’s legacy trusts. They were comfortable serving in this role, which includes determining the trust’s investment strategy and approving any discretionary distributions to beneficiaries. There are few G2s and they are close, having worked together for years. However, the rising generation of G3 cousins are numerous and not as familiar with their cousin counterparts as the sibling group is with each other. As written in the trust documents, the G3 cousins are next in line to serve as trustees of other cousins’ trusts, which didn’t sit well with the cousins overall. With the transition to G3s on the horizon, it was time to re-consider setting up an FTC.

Another driving motivator was the diverging investment interests of the family. Although they continued to invest together on certain projects, they also had invested trust assets separately. The family readily saw the advantages of setting up one FTC, but they also wanted to continue segregating different trust investments.

With all these nuances in mind, the structure of the FTC is designed to meet the needs of this family features the following:

Board of Directors

The FTC holds regular meetings, gathering family members and FTC Board members together twice a year to discuss essential matters concerning trust administration, wealth management, and family governance. The Board is comprised of Family Directors (one from each branch) and two Independent Directors. Initially, the G2 siblings are the Family Directors. Over time, they intend to move the Family Directors to G3 family members.

Discretionary Distribution Committees (DDC)

Due to privacy concerns and differing preferences among family branches, multiple DDCs were formed. These DDCs are responsible for making discretionary distribution decisions for the individual branches, thus respecting confidentiality and privacy since the decisions of the DDC are not ratified by the Board.

Investment Committee

The Investment Committee was established to oversee joint investments of non-family business assets held within the various trusts. It allowed the family to explore opportunities in alternative investments together, ensuring that their wealth was optimally managed and leveraging a larger pool of liquidity.

Family Business Asset Committees

As mentioned above, given the varying investments in separate family business initiatives, multiple Family Business Asset Committees were created to align investment strategies with each branch's preferences. This structure allowed for separate investment decisions within family branches while maintaining collaboration on joint investments, including jointly owned family business assets.

This case exemplifies how an FTC can provide effective solutions to complex family wealth and governance challenges, ensuring the preservation of both assets and family unity across generations.

_{The information provided is general in nature and is not a testimonial or endorsement by any existing or potential client. No compensation was provided directly or indirectly for use of the information. The information provided is generalized based on hypothetical backgrounds that led to the approach discussed.}