Leveraging a Private Family Trust Company to Tailor a Legacy Trust for a Closely Held Business

A successful small business owner was determined to create a lasting legacy for his growing family. He approached our team with a clear vision for guiding the next and future generations. In response, Shields Legal designed a Private Family Trust Company (PFTC), to be managed by the family and their trusted advisors, to oversee and sustain the family business for years to come.

Introduction

Shields Legal’s client wanted to create a sustainable wealth legacy for his family across generations while maintaining his family’s values. He aimed to streamline costs as his business expanded while planning to establish a family office that involved his children in key decision-making. Ultimately, he wanted to ensure that the wealth generated by his business was grown and preserved, and that his family vision remained consistent and clear for future generations.

Problem

Our client sought to prevent traditional trustees from selling his business after his death and to curb the tendency of future generations to spend the family wealth rather than preserving it for the future. To address this, Shields established a trust company with family members serving as managers, alongside trusted advisors and professionals.

This approach allowed the trust document to be less restrictive while embedding the family vision and operations at the Trustee level (an LLC in this case). It provided the flexibility to meet beneficiary needs and adapt to legal changes, while empowering advisors to preserve assets and achieve tax planning objectives.

Solution

Shields divided the client’s goals into specific sectors of future administration and appointed committees to oversee each decision area. By establishing guidelines at the committee level, the client’s vision and values can be implemented more clearly than would have been feasible or advisable within the trust agreement’s language. Additionally, the client can advise and observe the committees during his lifetime, providing valuable examples for future administrators.

Through our team’s recommendations, the client established eight committees to oversee the following areas: Distributions (one for the client and spouse, and another for other beneficiaries), Education, Charities, Investments, Closely Held Businesses, Family Start-Ups, and Amendments. Family members serve alongside trusted advisors, but they are not permitted to vote on decisions that directly impact themselves. Family members retain the ability to remove advisors who no longer have the time to serve on the Board or who are no longer aligned with the Board’s goals for the trust.

Establishing two distribution committees provides greater flexibility for the client and his spouse while imposing more restrictive rules for other beneficiaries. The client and spouse can make distribution decisions under a HEMS standard, or for any reason if an advisor signs off. Otherwise, family members do not vote on these committees, but do have the authority to remove committee members. Family members can serve on other committees if the decision isn’t directly for them.

Education distributions are managed by a committee that follows guidelines for assessing educational prospects, plans, and funding and family members can serve here. Meanwhile, a Charitable Committee evaluates each charity’s impact on its mission, use of funds, and qualifications.

The Closely Held Business Committee provides clear direction for running the family business, the client’s largest asset, and serves as a training ground for family entrepreneurs. The Start-Up Committee offers a framework for the client’s children and grandchildren to request funding for entrepreneurial projects. The Investment Committee can either evaluate individual investments or appoint and monitor an investment advisor.

The Amendment Committee addresses ‘known unknowns,’ particularly the prospective 2025 tax bill(s). It ensures that a trusted legal advisor maintains the terms of the Trusts and Private Family Trust Company in accordance with evolving laws. As the drafting attorneys, Shields Legal assumed this role and are pleased to serve in this capacity.

These committees perform duties typically managed by a single trustee, but by ‘dividing and conquering,’ they institutionalize a level of sophistication that would be unattainable for an overburdened individual trustee. This approach also alleviates the internal struggles and incoherence often associated with a third-party corporate trustee.

Shields Legal’s design allows the family to retain control while benefiting from the superior expertise of the relevant committees. Additionally, the committees have the flexibility to expand as needed, bringing in trusted advisors as the trust grows. The client and family maintain absolute power over the composition of the committees, ensuring a ‘family first’ approach and guaranteeing that family interests remain central in every situation.

Conclusion

The Private Family Trust Company structure offered our client a unique approach to preserving generational wealth, maintaining family values and culture, and providing education on business and investing. It seamlessly blends family control with the expertise of empowered advisors. Shields Legal is honored to develop these intimate planning structures as trusted advisors to our clients. We relish the opportunity that novel situations present to assist our clients in planning for their family’s success across generations.