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U.S. Trust® Family Office Profile: Experiencing A Liquidity Event? Questions You Should Ask Yourself

Couple near the water fall

You just sold the company that your grandfather started 100 years ago. Alternatively, you are 66 years old and the CEO of a public company and have just announced that you will retire next year. Maybe you have just taken over leadership of your family's financial estate following your father's or mother's recent death, and you are just now realizing the great responsibilities associated with managing it. Whether you are one of these three people or the head of a wealthy family with similar circumstances, you face the daunting task of steering the family's financial ship. How will you do it? You might want to ask yourself the following questions.

Family Culture and Governance

  1. What do we really want to do with our family's money? How much do we invest in financial assets, in the community and in the family itself?
  2. Do we wish to establish a culture of entrepreneurship, and should the family fund new business ventures for its members?
  3. Should we also provide family funds to help its members pursue interests beyond business?
  4. Do we need a family office, and, if so, who should run it? What services should it provide to the family members? How much are we willing to spend on it?
  5. Should our children to be in business together? Should we, their parents, be making that decision for them?
  6. How do we effectively invest in family education?
  7. Should we have regular family meetings, and, if so, what are the agendas?


  1. Should we manage our investment portfolio or hire a professional?
  2. What types of professional advisors do we need and want? Should we have an overall investment consultant who would recommend and then monitor individual investment managers?
  3. In which asset classes should we invest and in what percentages?
  4. How should we select money managers, and when do we fire them?
  5. How do we put together the right team of managers? How do we blend the various manager styles within each asset class?
  6. Should we own tangible assets including real estate, timber, or oil and gas?
  7. How do we balance the competing forces of profit taking, portfolio rebalancing and taxes?
  8. How do we look at and fully understand the risk inherent in the financial markets? Should we have a safety portfolio of high-grade municipal bonds, and how much should that be?
  9. What level of assured income do we need?
  10. How can we manage a large bond portfolio? What are the alternatives in the marketplace, and what are the comparative costs?
  11. Should we own hedge funds, and, if so, how do we go about investing in them?
  12. What are my options for investing in real estate beyond purchasing a property and managing it? If I invest in real estate, should I have a concentrated or diversified portfolio?
  13. What are the alternative ways to invest in private equity? How much is prudent to invest in this asset class and how should I diversify my investments?
  14. How do we figure out how much our overall investment program is costing? How do we manage these costs, and, more importantly, how do we know whether we are getting our money's worth?
  15. Our family's wealth is still concentrated in a single public company. Should we still hold on to this large concentration, and what strategies should we employ to manage this risk and even diversify away from it? Is today a good time to sell or hedge the stock?
  16. We have substantial stock options, representing an overwhelming share of our family's wealth. When and how should we exercise these options? Can we efficiently manage the taxability between capital gains and current income?
  17. Why shouldn't we just invest our financial equities in index funds? What are the differences between index mutual funds and exchange traded funds? Which should we use?
  18. How do we manage our overall liquidity? Should we have a limitation on the percentage of illiquid investments, and what should that be?

Wealth Transfer

  1. Realizing that we had already done considerable estate planning before the sale of our business, what further wealth transfer techniques should we employ?
  2. If my spouse and I were to die today, what tax bill would our children face? What can we do to minimize it?
  3. Should our assets be titled any differently today?
  4. Without giving our children and grandchildren direct control over the funds today, what wealth transfer vehicles would be most efficient for us to employ to transfer parts of our estate to the next generations?
  5. We are willing to establish a perpetual fund to benefit future generations. How do we establish this? Also, what are the most efficient ways to use our generation-skipping transfer-tax exemption, and how do we keep future estate taxes to a minimum?
  6. We heard a lot about family limited partnerships and limited liability companies, but we also heard that the IRS is challenging the valuations individuals place on these structures. We do not like to live on the edge of IRS regulations, so would you advise us to use the family limited partnerships format? If so, how would we structure it considering the make-up of our family assets?
  7. We do not want to subject our children to enormous probate expenses. We heard that it can be advantageous to place considerable assets into a revocable trust. If this is true, what are the advantages and drawbacks of this strategy?
  8. How should we establish distribution policies in long-term trusts where there are no mandatory income or principal distribution provisions?


  1. We have decided to establish a charitable legacy. How can we establish charitable structures in a tax-efficient way?
  2. What are the alternatives to setting up a private family foundation, and what are the advantages and disadvantages of each?
  3. If we establish a private foundation, what resources are available to assist us in managing the grantmaking function? Can we employ family members, and what expenses can a family foundation legitimately absorb?
  4. Should our focus on having an impact be limited to charitable endeavors only, or should it be reflected in our broader investment decisions?

Fiduciary Administration

  1. We understand that some state jurisdictions are more friendly for trusts than others. Given our family situation, should we establish our trusts in states other than our home state?
  2. Which jurisdictions offer asset protection? Are the trusts well protected against divorce and creditors?
  3. Should we consider offshore trusts? Are there any meaningful tax advantages?
  4. Who should be our trustees? What are the real advantages and disadvantages of a corporate cotrustee? How many trustees should we have? What about succession?
  5. Should we have a trust protector or trust protector committee in place to  oversee the trustees as well as to be in a position to change certain terms and provisions in the trusts?

Reporting and Technology

  1. We have investments ranging from stocks and bonds to hedge funds, private equity and real estate. How do we keep track of everything, and what tools are available to provide us with a consolidated reporting format?
  2. What are our cash flow needs and how do we keep track of expenses, pay bills and account for all activity?
  3. How do we establish effective benchmarks for our managers so that the family truly knows how our portfolios are performing? What reporting formats would be informative yet not overwhelming?
  4. How do we monitor and evaluate the risk level of the portfolios? What effective risk measures should we be using?
  5. What different family office technology and reporting systems are available in the market today?
  6. How much money should a family of our wealth spend on reporting and technology? We are willing to commit the necessary funds to meet our essential reporting needs but do not want to overspend on technology that we may not really need or use.

Insurance and Risk Management

  1. Should we have an overall insurance advisor help us figure out what insurance our family needs and then evaluate the different products to meet those needs? Or should we just deal with local insurance agents in life, health and property?
  2. Will our heirs have an adequate estate after they pay estate taxes? Do we need a more extensive insurance program to preserve the current value of our estate? How will our insurance needs change over time?
  3. What specific life insurance products fit our needs today, and which ones will we likely need in the future?
  4. Should we be concerned about disability and longterm care risks? How should we insure against these risks?
  5. How do we evaluate the features of individual insurance policies?

Banking and Credit

  1. When is it efficient to employ leverage in managing an investment portfolio? For example, should we borrow against our bond portfolio to invest in hedge funds?
  2. What is the state of the art in banking services today?
  3. Leaving investment advisory services aside, what do we look for when choosing a private banker?
  4. How do we best manage or leverage a banking relationship?

Business Continuity

  1. Do we wish to maintain the family business for many more years, or are we willing to consider a near-term sale at the right price?
  2. What rules do we want related to employing family members in the business?
  3. How do we prepare nonparticipants to become effective directors or shareholders?
  4. What is our policy toward having outside directors and senior managers? How do we attract top talent to serve in those roles?
  5. What are the appropriate dividend policies — especially for family shareholders who do not work in the business?
  6. Additionally, what policies should we put in place to govern shareholder redemptions?

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