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January 31, 2023 at 01:20 PM
What You Need to Know
- UHNW families are seeking a legal structure that enables them to not only preserve their wealth but also to pass on their wealth in a sensible,manner.
- Private trust companies enable family members to be directly involved in decision-making processes while also limiting the family’s liability.
- Careful selection of state tax jurisdiction can position families for additional benefits.
Wealthy families have been turning to family offices in droves as the greatest generational transfer of wealth in human history is well underway, with more than 18,000 ultra-high-net-worth (UHNW) families passing on assets to Gen X and millennial inheritors.
Today’s UHNW families and their family offices are employing more sophisticated, institutional-like governance and investment strategies to manage and safeguard their exponentially growing wealth for future generations and sensibly pass it to their heirs.
However, in a high-stakes process fraught with emotional complexity, fiduciary obligations, globalization and regulatory compliance, nuanced variations such as family partnerships and third-party trusts have emerged for managing a smooth succession.
Some UHNWs are gravitating to a hybrid option to steward their wealth, i.e. private trust companies, or PTCs. PTCs integrate family offices into the trust structure, enabling family members to be directly involved in decision-making processes while also limiting the family’s liability and offering more control over their fiduciary structures.
Preparing Millennials, Gen X
In 2018, one-third of family offices were structured as LLCs. However, direct ownership does not provide the benefits of trust ownership as granted by PTCs for asset protection and estate planning because LP and LLC interests remain on their members’ personal balance sheets.
Twenty-nine percent of family offices globally reported a shift toward more professional, non-family member staffing in 2022. The traditional outsourced trustee structure remains popular because of the independent, objective governance and expertise of a professional team, as well as the fiduciary and compliance peace-of-mind that comes with it.
However, this next generation brings shifting priorities, including family unity and continuity — which were ranked the second highest family office focus — trailing only behind investment management. Further, the second, third, and fourth most pressing family and family office concerns were, respectively: preparing the next generation to be responsible wealth owners; managing transitions; and developing a shared family vision.
UHNW families clearly seek a legal structure that enables them to not only preserve their wealth but also to pass on their wealth in a sensible, thoughtful manner. And the younger generations want to be more involved.
PTC & Customized Trustee Service
Millennials are famously more socially conscious than their parents and grandparents, with keen interests in ESG, socially responsible investing and transparency. The private trust company’s hybrid structure satisfies the desire for more involvement and control by the family.
With a PTC, the family effectively creates a separate trust company (administered by a professional trust company that does not provide trustee services to the public) that acts as trustee solely for trusts benefiting that particular family. Family members can retain a measure of control while still outsourcing most of the responsibility by serving on advisory committees or as board members alongside trusted advisers and a professional fiduciary.
