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Ohio Family Trust Companies—A Case Study

Is a private family trust company (PFTC) right for you, or perhaps someone you know? Here we put forth a case study that exemplifies how a PFTC can be an ideal 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 is 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 private 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 family trust companies as a way to keep the family together and the family business privately held across generations. 

Learn more about private family trust companies here.

Disclosures: The information provided is general in nature, is provided for informational purposes only, and should not be construed as financial or legal advice. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All financial decisions must be evaluated as to whether it is consistent with your objectives and financial situation. You should consult with a financial, tax, or legal professional before making any decisions.

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