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Ohio Family Trust Companies—Generation Three Shareholder Transition

In this article, we present a case study that exemplifies how a private family trust company (PFTC) can be a shareholder transition solution for a family owning a privately held company with the desire of passing the company on to future generations.  This case study focuses on the transfer of a privately held company to the third generation (G3). Generations are referred to as G1, G2, and G3, successively. 


In the early 1930’s, G1 started a concrete business—Concrete, Inc. (“Concrete”).  G1’s three children were actively involved in the business—each working in various leadership capacities.  With their "boots under the same table" each night, G2 personally watched, lived and understood the sacrifices required to make Concrete successful. At the dinner table, G1 imparted his wisdom, as well as his values, to his children.  As G1 aged, he transferred his ownership interest in Concrete outright to G2 in equal shares. 

Fast forward to present day, G2 has grown Concrete from a small concrete business to a regional leader in the industry.  Concrete is a successful and highly profitable company with some G3 family members actively involved in Concrete at different levels of management.  Two spouses are also working at Concrete.  However, not all G3 family members desired to join Concrete and have chosen different career paths.  The family is wealthy, growing and geographically dispersed—thus no longer do they have "boots under the same table" each night—now it's different families with different parental influences.

G2 is ready to retire plus their advisors are encouraging them to complete estate planning given the continued appreciation of Concrete shares.  G2 recognizes the risk of shares of Concrete being included in the estates of individual family members.  Of primary concern is that an untimely death or worse, multiple untimely deaths, could create undue redemption pressure on Concrete to meet the estate tax obligation of family members lacking liquidity, but with a highly valuable illiquid asset in the estate.  It is anticipated that the executor of the family member’s estate would turn to Concrete to assist in creating liquidity to meet the tax obligation by redeeming shares from the estate.  In addition, G2 realizes that as each generation creates trusts selecting different trustees, current and successor trustees would multiply.  These trustees would potentially be more removed from the family and particularly from the family’s mission, vision and values.  Further, the trustees’ lack of knowledge about Concrete could lead to distractions for Concrete’s management teams as they are called to educate numerous trustees on Concrete’s strategy, but more importantly needing to justify the reason the shares should remain in trusts even as a concentrated position.  Finally, the larger the family becomes G2 worries that the family’s values, traditions and overall commitment to the family and Concrete are being weakened.  

Over time, the family has worked to keep family stories and the history of Concrete "alive" through regular family gatherings designed to provide updates on Concrete as well as foster positive family relationships. Although it's clear that the family meetings are helpful and important, G2 also realizes a more formal structure needs to be put in place for these events to continue to occur, as well as expand activities to keep the family connected. Lastly, G3 family members, in general, have indicated an interest in continuing to be a part of Concrete—few have a desire to divest of their grandfather’s legacy.  The question became, how can this legacy be supported across generations with some G3 family members working in the company and others not.   


The G2 family members, working together, determined the best course of action was to create dynasty trusts for the benefit of G1’s lineal descendants and place shares of Concrete in the trusts. In addition, they created an unlicensed Ohio private family trust company to act as trustee of each dynasty trust. 

Working with CLS Consulting and their lawyer, a family trust template was created with provisions to protect the shares of Concrete as well as set a new PFTC up for success.  Provisions were carefully considered to be reflective of the family values and desire for Concrete to remain privately held.  In addition, an exit strategy for family members in the future was carefully considered.  Each G2 family member determined the number of Concrete shares to transfer to an individual dynasty trust based on their need for dividend income to support their household as well as future liquidity needs. 

The structure of the PFTC was also carefully considered to support the values of the family. Ownership of the PFTC is equally held 1/3 by each family branch.  The Board is comprised of a representative from each of the three family branches—selected independently by each family branch.  In addition, two Independent Directors serve on the Board. CLS Consulting created detailed job descriptions for each board and committee position to support the family’s vision for the future.

Through a corporate structure, this family created a unique committee—a Family Engagement Committee—to offer a long-term solution to the work they had already begun in bringing the family together. The Family Engagement Committee is responsible for planning regular activities (“family glue”) to engage family members socially plus expanding to include the publishing of a quarterly newsletter through the PFTC. An Education Committee was formed to offer educational opportunities for the family members with a particular emphasis on G4 programming such as attending a summer "camp" at Concrete’s headquarters to learn about the company early.  The Investment Committee was given the responsibility of determining how to manage any liquidity from Concrete dividends that weren’t distributed from the trusts.  As you can imagine, the variety of skills needed offered opportunities for family members outside of the company to become involved (i.e. those with teaching backgrounds, financial planning interests, and family focused desires).  This serves to bring the family closer together working side by side outside of Concrete. Finally, the voting decisions for the Concrete shares held in trust were delegated to a Family Business Asset Committee.  This Committee is comprised of family members with unique backgrounds with the company and the understanding of its operations as well as an appreciation for the family plus two Independent Directors bringing an outside perspective to voting decisions.  Thus, voting control was vested in a subset of the family plus two independents.  

Through this shareholder transition plan, this family has moved from “boots under the same table” to “boots under the same roof” bringing the family together across generations to come. The PFTC solved their estate planning concern for trustees, provided the start of a family governance structure, and kept voting control of the company in a select group best positioned to make these decisions.  The PFTC has been successful in bringing together a family that had started to drift apart and even engaged family members who had been considering a full redemption of their shares.  The time the family spent exploring the trust provisions for the template as well as the PFTC structure was time very well spent.  

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 expressedby 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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