When families think about “risk mitigation,” they typically are thinking about preparing themselves to handle problems when and if they occur, perhaps by creating a private trust company (PTC) to succeed individual trustees, or by purchasing insurance to guard against the losses that may result. 

However, as Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.” By instituting a framework for collective decision-making that involves and engages the entire family, many of the most common risks that PTCs face can be avoided. When people feel that their concerns are heard and that they have a stake in the process, they are more willing to work out their issues amicably, within the collective framework, rather than pursuing independent legal action against the PTC. 

Families interested in instituting collective decision-making using a PTC should strive for the following: 

• Intergenerational consensus: It’s crucial that family members of all ages agree on the creation and structuring of the PTC. While the older generation has the benefit of hard-won wisdom, they must be careful not to impose their views on younger family members or dismiss their perspectives too easily. 
• Clearly defined roles: Who has the authority to execute on a decision and in what circumstances? Is it the entire family, or perhaps an agreed-upon subcommittee of family members? Who will be a part of that subcommittee and how will that be decided? Will independent advisors be involved? Consider the relative expertise of those involved and how well they represent both the distinct viewpoints within the family and the family as a whole. 
• Specific rules: The family should work together to lay out rules that govern how it approaches specific issues. For example, the family may wish to establish investment subcommittees to handle specific types of investment decisions, like those concerning a family business.  The members of this subcommittee may include family members who work in the business, independent advisors and perhaps designated representatives of family members who are not actively involved in the business.  The PTC may have different subcommittees to handle investment decisions around liquid investments held in trust for different family members.  Members of these subcommittees would be the affected family member or their representatives.  This structure ensures the right people are involved in decision-making and that information is shared appropriately.   

It’s important to remember that the goal of a PTC is not just to preserve family wealth, but also to preserve family harmony. By devising an inclusive, transparent framework for shared decision-making across generations, families can achieve both.

 

About the Author

Amantha Butler is the Head of Fiduciary for BNY Mellon Wealth Management Family Office. In this role, she oversees the provision of fiduciary services for BNY Mellon Family Office. She has over 15 years of experience in fiduciary oversight and administration, and advising clients on the intergenerational transfer of wealth and control. Amantha received her Bachelor’s degree in Political Science from Amherst College and her Juris Doctor degree, magna cum laude, from Cornell University. 

Hear Amantha discuss "Turning the PTC Idea into an Operating Trust Company" at the 2019 FOX Private Trust Company Fundamentals Workshop. Click below to learn more.

Disclosure 

This material is provided for illustrative/educational purposes only. This material is not intended to constitute investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of all of the investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ^© 2019 The Bank of New York Mellon Corporation. All rights reserved.