When Do We Transition from a Family Office to a Family Trust Company?
Over time one trust become multiple trusts. Families tend to create “open architecture trusts” and one trustee becomes multiple trustees in which fiduciary roles are parceled out among directed trustees, protectors, advisers, power-holders and committees. In a family office it is difficult to keep track of trustee duties, approvals, distributions subject to discretionary approvals and sign offs — deadline, due dates.
These are accompanied by a heightened risk of mistakes which are inherent in any complex system involving moving parts and players; such as repeatedly overlooking installment payments to an owner (now known as the Grantor).
When unprepared for and with little or no support structure, disasters can and do result from inadequate management.
An owner may feel his trusts and trustee(s)have not reached this point so there is no need to make a change. But also consider what illiquid assets are being held such as your business, real estate or business-related investments- these add more complexity- buy/sell agreements, business succession plans, partnership assets and interests, standards for investment management for trusts.
A legally drafted family office: due diligence, state of formation, licensing and a well thought out business plan for people, skills, practice management and process can work for a while as it structured for trust work and investments.
Dependence on individual trustees to do their jobs is what becomes tiresome as this system grows. The family office needs to keep track of back up lists of trustees in the event of retirements, illness, or premature death.
These are the frequent reasons for considering a family trust company. It removes the reliance on individual trustees in favor a family trust company which is the trustee for the family. In this sense a family trust company is like a public trust company which serves as the trustee for clients and hires trust officers.
When you are ready, this need a census of people, assets, roles. If your is a family of at least 3 or 4 generations with a suites of trusts: it is hard to put a number on this! But you will know when it is burdensome!