How do I structure my family empire?

April 23, 2009 9:37 AM

How can I set myself and my family up to be the next Rothschilds? (In terms of structure of family wealth etc)

I am not a billionnaire but I have some wealth. It strikes me that if my siblings and I were to pool our resources we would have considerable assets, spread out all over the world. My parents never started us off to become a powerful or rich family or anything but I'm interested in structuring things that way, rather than owning it all myself etc.

I know a bit about general structures that can be used for companies, investment funds, trusts and foundations but I'm curious if there is a particular structure commonly used for families.

For example: if I own property worth $1 million, my brother owns property worth $2 million and my sister owns nothing - how would we all contribute to the pot? How do we take stuff out? How do we avoid hating each other out of jealousy and frustration?

posted by anonymous to work & money (11 comments total)

Consult a trained financial planner who works for a flat fee.

Do not consult the Wider Internet Theory Bucket.
posted by Happy Dave at 9:40 AM on April 23

If you have enough money to be thinking about this, you have enough money to pay a professional to help you do it.
posted by Perplexity at 9:44 AM on April 23 [4 favorites]

Do you get along with your family now? If so, keep doing what you're doing and don't mix money and family.

Mixing money and family almost always causes at least one person to become estranged and/or all of the relationships to become incredibly sour, bitter, complicated.

I totally get the desire, and probably there are some financial benefits for doing so (at least in the immediate short term, or incredibly long term). But every family that I've known that has tried to intertwine its money dealings is just fraught with complication, and those relationships are even more strained in the next generation. Triply so if it's a new thing.
posted by barnone at 10:09 AM on April 23

How do we avoid hating each other out of jealousy

Nothing on heaven or earth (or in law) can prevent a relative from becoming irrational. The best you can do is set up something that you all believe is fair.

Trusts are common -- Nolo press almost certainly has info on them, and you can talk to any financial planner (seconding above recommendation for one who works for you, that is, takes a flat fee rather than a commission).
posted by zippy at 10:10 AM on April 23

I know a bit about... trusts... but I'm curious if there is a particular structure commonly used for families.

Trusts are commonly used for families. Sometime, trusts are created to hold the wealth, with only the dividends divided among family members. This maintains the original wealth.

You will get your best advice from someone you trust with your specific information, anonymous. I completely understand that you don't want to (and shouldn't) share your specific financial information on the Internet, but that's also why we could never give you good advice.
posted by Houstonian at 10:27 AM on April 23

Are you living in this million dollar property? If so, it's not really an asset.
In my understanding, these shared fortunes come into existence when a single person makes a fortune and puts it in trust for future generations like the Rothchilds. You can start something similar for your offspring, or start family foundation where your siblings can choose to contribute and together you can all fund philanthropic works in your family's name.
posted by ladypants at 10:53 AM on April 23

I think you need to think through a little more exactly *why* you want to create this big pot of family money with your siblings, rather than just setting up your own will to take care of your kids and nephews/nieces as you see fit with your own money. What's the point? What do you see as the advantages of doing so? Certainly there are examples of very wealthy families putting together foundations and other vehicles towards charitable ends--I'm think the Ford Foundation or the Gates Foundation. Among other reasons, it seems like families do that because (1) they want to leave a positive mark on the world and (2) to avoid taxation and preserve that principal. But those are very well-articulated reasons, and a pot of money with a purpose, and even in those situations there are inevitably hard feelings and estranged family members.

On the other hand, what you proposed sounds really vague, and it's not clear to me what the upside is--are you thinking of ways to structure family money simply to avoid the estate tax? Or is this some sort of 'self insurance' pool for all your descendants, so that all of them can get a leg up on life (through guaranteed college tuition and maybe some seed money) regardless of how any of your siblings do in their business ventures? Is it for charitable causes, and to get your family's name onto buildings? None of those are bad reasons, necessarily, but they're all very different and would probably require different approaches, and you may find your siblings are more or less willing to participate depending on what your vision for the money is.

There was something similar to what you're proposing set up in my family, and I cannot emphasize enough how destructive it has been in the lives of the people involved. I can say with a fair bit of confidence that all the players involved (from my parent's and grandparents' generation) would have been better off if that money had never been put into a family trust. There's a huge downside risk here--if the pot of money is just sitting around, with a vague purpose of being for all the people in the family, there's inevitably going to be conflicts when one person wants to dip into it to start up a business, or to pay off his delinquent taxes, or invest in gold bullion, or whatever. Also, once you get to a certain amount of money, there's going to be a lot of temptation among participants to start cutting out members of the family from the trust. I think it's somewhat natural for bonds with siblings to become weaker as we age, and bonds with our spouses and children to take up that slack, and the combination means it starts to seem righteous to cut old freeloading Uncle Jim out of the trust--after all, he's frittered away so much! and that's money that could be going to your kids!--and the legal actions that ensue will drain the money until it's gone. This process lays waste to all the relationships involved, most of the time irreparably.

Anyway, if you're set on this idea, I'm sure a lawyer or financial planner who specializes in family assets can help you figure out the proper vehicles to set it up in that will be financially most advantageous. From a human-relations perspective, however, I think you really need to clarify for yourself exactly what the point of this exercise would be (after all, that will certainly influence how the legal structure is set up)--and that's not something that a lawyer or financial planner is necessarily qualified to help you with.
posted by iminurmefi at 10:55 AM on April 23 [5 favorites]

My best friend's wife is a private banker for a family trust; that is, her employers are a family with enough money that they have started a bank that is open only to the beneficiaries of the trust, which invests the family's money and disburses it to the family members. So that's one way really rich people manage this.
posted by nicwolff at 11:17 AM on April 23

Step 1: Become billionaire.
Step 2: Clearly define goals. Becoming "like the Rothschilds" is not really a goal; do you mean in terms of power, money, philanthropy, hobnobbing with European royalty, what?
Step 3: Use some of the money from step 1 to pay very smart people to help you achieve goals set in step 2.
posted by LittleMissCranky at 12:31 PM on April 23

I'll add to what Perplexity and Happy Dave said: If you have enough money to be thinking about this, you should already have a professional - a lawyer - to prepare an estate plan, including a will, and who is qualified to address your "family bank" questions. (Conversely, if she's not able to answer those questions, she's likely not well-qualified to prepare your estate plan.) It is irresponsible not to have a will if you have millions and are concerned about your family's financial well-being.

LittleMissCranky is a little conservative. You don't need billions to start thinking about this, but I assume you're talking about no less than tens of millions. If not, it is really is too early for a family bank, but you still need a will.

How To Find the Right Lawyer is beyond the scope of your post.
posted by Dave 9 at 1:00 PM on April 23

IIRC (and I may not) one of the strategies the Rothschilds used to maintain their fortune was intermarrying relatives -- second cousins getting married and such like, so inheritances were kept within the extended family. I recall an article in the past 5 years or so that used the Rothschilds as an example of the tendency for all things to return to the mean, even when attempts are made to keep the bloodline 'pure'. (Obviously, this falls under the category of long-term plans).

On a personal level, I'm with barnone and iminurmefi, I've known way too many wealthy families who wind up absolutely hating one another. And I think Carnegie (and Buffet) was right, inherited wealth is bad for people, saps their productivity. But hey, good luck!
posted by Bron at 4:04 PM on April 23