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.

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. 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
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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?”
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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……”
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5. Dad’s Dynasty Trust
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
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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
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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
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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?
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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”
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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
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11. This is what Dad should
have done
Shareholders
Family
Company
Assembly
Family Council
Advisory
Board Directors
Business Career
Education Planning
Committee Committee
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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
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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
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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
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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 Kong
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