Wealthy families are often confronted with choices as to how they can hold their wealth. Broadly, the choices are holding these personally and devolving wealth on death, in a holding company held personally, or through a holding structure, such as a trust or foundation. Why do families choose trusts and foundations to structure their affairs and what advantages and disadvantages do they have to offer? This depends to a significant degree on the family itself, and specifically, where they are located, what assets they own, tax treatment, and the objectives of the family (or decision makers within it).
Quite often, the decision maker for families is vested in the older generation, perhaps a matriarch, a patriarch or both. Their objectives as regards their wealth generally fit under the following categories:
- smooth succession planning, that is, how the family wealth is passed on and how investments are managed;
- asset protection;
- tax efficiency;
- order; and
- cost (which will be addressed in another article).