How can a family best structure its affairs?
Setting up a family holding structure requires:
- careful planning to balance control,
- governance,
- asset protection, and
- flexibility.
The structure should be well-established, tested over time, and allow family members to remain actively involved in management and decision-making. Only too often newly created holding entities such as trusts, foundations and companies are offered as a possibility. And too often these are taken on board when later it appears that there are many “young age” deficiencies. My advice is to only consider family holding structures that have been widely used without problems for 25 years or (much) longer.
Below are the key considerations that families must deal with when considering setting up their own structure to hold the family assets:
1. Level of Family Control
A well-designed family holding structure should ensure that family members retain control over decision-making. This can be achieved through mechanisms such as:
- Issuing different classes of shares (e.g., voting and non-voting shares) to separate control from ownership.
- Creating a family board that oversees strategic decisions.
- Establishing a family constitution to formalize values, governance, and long-term goals.
A holding company (Holdco) is a common structure that allows family members to maintain oversight while centralizing investment management. Often such Holdco is in turn held by a trust or foundation as an extra precaution against undesired, counterproductive and/or uninformed involvement of all members of the family. My view is that only the family members that are really managing the affairs such as the family business, the investments, the art collection, real estate or philanthropy will have control while keeping their family informed to the extent necessary.
When selecting a top ‘controlling’ entity one must consider also:
- Are outside directors required (by law and/or practice)?
- Do family members or others have access to (financial) data of the entity?
- Can the entity be managed where the family wants?
- Is the legal infrastructure in the jurisdiction of the entity stable and sound?
2. Involvement of Family Members and Outsiders
Families must decide who should be involved in running the structure. Typically, the key participants include:
- Family Board: Made up of senior family members and successors responsible for governance and major decisions.
- Family supervisory board: Made up of representatives of the family who are not on the board or those under a particular age. This board has rights to defined information and sometimes limited voting rights.
- Family training and educational/philanthropic board; This board allows the youngest generation to get the picture and talk or decide on philanthropy.
- Professional Management: In cases where family expertise is limited, hiring non-family executives can help improve efficiency. However, clear boundaries must be set to ensure that family values and objectives remain intact.
- Advisory Board: Some families appoint independent experts for guidance on financial, legal, and strategic matters.
3. Flexibility and Succession Planning
A family holding structure should be adaptable to changing circumstances, such as economic shifts, regulatory changes, and generational transitions. Key elements include:
- A clear succession plan that prepares the next generation for leadership.
- Exit mechanisms for family members who wish to leave without disrupting the business.
- Periodic reviews to ensure the structure remains aligned with the family’s needs.
4. Asset Protection Against External Threats
To safeguard family wealth from legal claims, political risks, and bad actors, families can:
- Use holding companies, foundations or trusts in stable jurisdictions with strong legal protections.
- Implement asset segregation, ensuring that high-risk business activities do not endanger core family assets.
- Adopt legal structures that shield assets from excessive taxation and expropriation.
A well-structured holding company together with a solid foundation or trust can also provide protection against lawsuits, creditors, and political instability by keeping assets separate from individual family members.
5. Long-Term Sustainability
The governance framework should be designed to last for generations. Elements that contribute to longevity include:
A clear definition of who is family + their possible roles; Are in-laws, adopted children family? What does the family stand for?
- A clear investment strategy to ensure financial stability.
- Education and mentorship programs for younger family members.
- Formal conflict resolution mechanisms to address disputes before they escalate.
Conclusion
A family holding structure should strike a balance between centralized control, family involvement, and professional oversight while ensuring asset protection and long-term sustainability. A holding company-based model, which is well organized, robust and yet transparent and flexible over time has stood the test of time and remains one of the most effective structures for preserving family wealth across generations.
