A Case Study ‐ a meeting with the Settlor and a  meeting with the family after the Settlor dies               STEP ASIA CO...
Meet your client…..his                                           name is Dad•   A Chinese Patriarch from Hong Kong, age 67...
You met Dad and Mum                                  last week and then ….•   Last week you had a meeting with Dad and Mum...
Dad’s dead………..                    now meet Family # 2• As one of Dad’s trusted advisors you are of course  invited to the...
Dad’s Dynasty TrustTrust Level controlled by                                 The Trust          Walter                    ...
What type of Man was                               Dad?•   Atlas carrying the world on his     back•   Centralized control...
What is the emotional                   reaction going to be?• What will be the emotional reaction to Dad’s death?• Disclo...
What type of leadership              is Walter going to show?• Is Walter going to be Patriarchal?• Is Walter going to be c...
How do you allow a                             beneficiary to sell out?                                    • What if Vicky...
How is the Trust going to stand up                             if the family go to war – or cut off?Trust Level controlled...
This is what Dad should                                    have done                Shareholders                          ...
How to change the story:                   While Dad is still alive• Secrets & surprises lead to increased chances of  fam...
How to change the story:                When Dad passes away• Expect that the family members are going to go  through an e...
What should the Advisor do                  about the second family?• Dad’s advisor needs to know about the  second family...
For more information, including articles to download,     and videos to watch, please visit our web site at     www.family...
Upcoming SlideShare
Loading in …5
×

Now dad is dead

643 views

Published on

You can not use a trust structure to bottle up family emotions. Setting up a trust to own the family business does not solve all of your succession issues. When you set up a trust you have to take into account the impact on the family relationships. When you set up a trust to hold a family business you have to understand the "three circle model" of family firms.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
643
On SlideShare
0
From Embeds
0
Number of Embeds
26
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Now dad is dead

  1. 1. A Case Study ‐ a meeting with the Settlor and a  meeting with the family after the Settlor dies STEP ASIA CONFERENCE 9‐10 NOVEMBER 2010 JW MARRIOTT HOTEL PACIFIC PLACE, HONG KONG
  2. 2. Meet your client…..his name is Dad• A Chinese Patriarch from Hong Kong, age 67, a very wealthy, self made man, but with some recent heart trouble• Dad has an existing family trust set up in the Cayman Islands, where it can run for 150 years. “The “Dad’s Dynasty Trust”• The Trust holds:(1) Family homes in Hong Kong (the Peak), New York and Lake Como in Italy(2) A 100% stake in the family manufacturing business worth US$100 million; It makes electric cookers(3) An investment portfolio worth another US$100 million• In the event of the death / incapacity of Dad, his eldest son Walter will take over as sole protector and sole member of the trust investment committee. Walter has not been told this though.• Walter is also the CEO of the family business• Dad has three children. Walter age 45 is the oldest son.• Next son is Frank who is age 42. Frank is the CFO in the family business• His daughter Vicky is age 40. Vicky has her own small children (2 of them) who take up all of her time• Dad is married to Mum who is a delightful lady (64 years old) who is well known in the social circles and charity scene in Hong Kong 2
  3. 3. You met Dad and Mum last week and then ….• Last week you had a meeting with Dad and Mum.• As a result of his recent heart trouble, Dad decided they should sign some wills to take care of anything left over outside the Trust• They met at your office and signed mutual Wills. The meeting was smooth and straightforward. Mum was chatty and pleasant as she always is.• Then you get a call from Dad (today)• He informs you “I want to change my Will. Don’t tell Mum about this. I am coming to your office to see you this morning. I will be there by 11.30.”• Dad is usually punctual but he is not at your office by 11.30.• 1.45 comes and he is still not there. He misses his appointment with you.• It turns out that Dad died of a heart attack on his way over to your office.• In a way you are relieved. The Trust structure is all in place. The Will of last week is in place. You think to yourself, Dad’s Legacy will surely go on for 150 years.• You also think to yourself “I wonder if he ever explained the terms of the Trust to his family?” 3
  4. 4. Dad’s dead……….. now meet Family # 2• As one of Dad’s trusted advisors you are of course invited to the funeral• Mum, Walter, Frank and Vicky are all at the funeral• So is Ruby …..• Who is Ruby? That is a good question.• Ruby says “I am Dad’s Wife. We have been married for 5 years now. We have two little toddlers. We have a beautiful home together in Shanghai.• “Dad always told me we would be taken care of if anything happened to him”.• “How did you meet Dad?” you enquire. “I used to be a belly dancer in a club in Shanghai……” 4
  5. 5. Dad’s Dynasty TrustTrust Level controlled by  The Trust  Walter Property  Hold Co Level Hold Co Hold Co 2  Hold Co 3 The Family  Investment  Asset Level Peak New York Italy Business Portfolio 5 5
  6. 6. What type of Man was Dad?• Atlas carrying the world on his  back• Centralized control in the first  generation• Keeps his cards close to his chest• Disclose information on a need to  know basis• Divided and conquer with  advisors• A large communication gap  between generations• A tug of war over succession 6 6
  7. 7. What is the emotional reaction going to be?• What will be the emotional reaction to Dad’s death?• Disclosure of the secret of the second family is explosive• Disclosure of the secret of the terms of the trust arrangement also has the potential to be explosive• How will the different members of the first family go through the grieving cycle?• On death the family members could react emotionally, rather than acting based on thinking 7
  8. 8. What type of leadership is Walter going to show?• Is Walter going to be Patriarchal?• Is Walter going to be collaborative?• Can the siblings work together?• What is the communication like among the 3 siblings?• Is there sibling rivalry between Frank and Walter?• Will Mum play the role of peace maker?• Will Mum play the role of King maker? 8
  9. 9. How do you allow a beneficiary to sell out? • What if Vicky, the daughter who is not involved in the business, wants to “sell out”,Vicky because she has no interest Ownership in the business? System • What if second son Frank, the CFO doesn’t like being controlled by his eldest brother, and he wants to sell out as well? Family Business • One of the potential system System downsides of a discretionary trust is that it does not provide for an easy “exit mechanism” 9
  10. 10. How is the Trust going to stand up if the family go to war – or cut off?Trust Level controlled by  The Trust  Walter Property  Hold Co Level Hold Co Hold Co 2  Hold Co 3 The Family  Investment  Asset Level Peak New York Italy Business Portfolio 10
  11. 11. This is what Dad should have done Shareholders Family Company Assembly Family Council Advisory Board Directors Business Career Education Planning Committee Committee11
  12. 12. How to change the story: While Dad is still alive• Secrets & surprises lead to increased chances of family conflict• To avoid the family going to war, Dad should be encouraged to explain the terms of the trust structure to his family while he is alive• Family meetings to explain the trust will avoid surprises & increase family harmony• The family should talk about “how are things going to work if something happened to Dad”?• The key question here is “can the siblings work together in the future?”• The trust structure needs to match the reality of the family dynamics 12
  13. 13. How to change the story: When Dad passes away• Expect that the family members are going to go through an emotional time• They will go through the grieving cycle• Different family members will likely go through the phases of the grieving cycle at different times• If possible the first family meeting after Dad passes away should not be to read the Will or to talk about business that needs to be dealt with• If possible, technical matters should wait• See The New Financial Advisor by G. Scott Budge 13
  14. 14. What should the Advisor do about the second family?• Dad’s advisor needs to know about the second family – it raises many issues• But the right kind of professional for this kind of issue is probably going to be a family therapist• For what to do about family secrets generally see John Bradshaw’s book on Family Secrets 14
  15. 15. For more information, including articles to download, and videos to watch, please visit our web site at www.familylegacyasia.com Family Legacy Asia (HK) Limited Contact: Christian Stewart Email: cstewart@familylegacyasia.com URL: www.familylegacyasia.com Office: (852) 2369 3309 Fax: (852) 2369 3613 Unit A, 9th Floor 1 Chatham Road South Tsim Sha Tsui Kowloon, Hong Kong15

×