Sound governance is the key to a resilient and effective family office. A governance framework that provides clarity about roles, responsibilities and decision-making processes will allow a family office to operate in a way that is consistent with its values and long-term objectives and will also mitigate against the risks of internal disputes or conflicts of interest.
Every family is different, not just in terms of the dynamics of its constituent members, but in terms of its accumulated wealth, investments, real estate, or any underlying operating businesses. These assets can often be spread across multiple generations, geographies and structures. Making the right decisions demands clear communication, confidence and a shared purpose and vision.
Appointing an experienced, trusted and independent professional to anchor this governance framework can put stability and impartiality at the heart of the structure. They can offer the right guidance in managing family structures in support of the family’s long-term goals, while also providing an objective view to benchmark the family office against industry best practice.
Families are often inclined to appoint someone who is closely connected, but serving as a trustee is this capacity is a big ask for a friend or family member. They will have existing links and histories with other family members, which means they may struggle to assert impartiality where disagreements arise and may find it more difficult to ensure transparency and accountability with respect to decisions.
An independent professional appointee can help to formalise the family’s shared values and vision and define guidelines for leadership and dispute resolution. With good governance and planning, the day to day running and management can be simplified, and the speed of decision making can be improved because there is always someone on hand to assist, even when a family member steps down or is impaired.
Trusts offer a range of benefits for families with complex assets or family succession issues who are seeking to move away from direct ownership to a structure designed to offer coherency for the future. However, many clients have reservations when it comes to setting up a traditional family trust because the separation of legal control and beneficial interest, which is essential to the nature of a trust, means they will lose direct control of their assets.
This may be an issue either because they want to retain a degree of control over the management of their assets or are unable to find a suitable service provider to act as trustee because the assets placed in trust, such as a family business, are regarded as too complex or high risk for an independent trustee to manage. Keeping their affairs confidential without disclosing to a third party may also be a priority.
For this type of client, a Private Trust Company (PTC) can be the solution. If properly implemented, it can address all the above concerns and even provide additional benefits. A PTC is a company that is formed solely for the purpose of acting as trustee of a single trust or a group of related trusts. It provides a mechanism for the settlor and his/her family to retain influence over the management of the PTC, and hence the underlying trust assets that it controls, without compromising the validity of the trust.
The most common control structure for a PTC is via the board of directors, which makes and oversees the strategic decisions affecting the trust assets as a whole. It’s advisable to appoint an independent, professional director to this board to ensure that the PTC and the trust(s) are administered correctly. This will help to protect the integrity of the trust(s) and ensure that the structure complies with the relevant regulatory regimes. Alongside the professional, the PTC structure allows for the settlor’s trusted advisers and / or family members to be part of the board of directors, or to sit alongside the board of directors as an advisory committee.
PTCs are companies limited by shares or guarantee, but it may not be desirable for the settlor or other family members to own the shares, or to be a member in the company, for a variety of reasons – tax, confidentiality, succession and asset protection. Typically, therefore, the shares in the PTC will be held by a purpose trust, which is not required to have named beneficiaries.
This would mean that the ownership of the PTC would not be seen to belong to the settlor or any other member in the event of the settlor’s death and would also not be available to a third party in the event of a successful claim against the settlor. Like any other trustee, the PTC will not itself be permitted to benefit from the trust assets and will be bound by the provisions of the trust deed and the other fiduciary duties of a trustee.
However, the composition of the PTC board or any advisory committees can be changed periodically to include, if desired, members of succeeding generations. In this way, we have seen PTCs work especially well in enabling new generations of the family to be part of the management and decision making, sitting alongside the preceding generation. With the support of the professional trustee to guide them all, fairly and impartially, a PTC can facilitate the smooth transition of responsibilities and continued good governance, while pursuing the ultimate aim of preserving and growing the family legacy.
