Among the many and varied detrimental consequences of the COVID-19 pandemic is the impact on the savings and investments of individuals, particularly in relation to estate planning. Financial markets have...
Family Investment Companies
A family investment company (‘FIC’) is a corporate structure created to house and distribute wealth as part of tax efficient lifetime and estate planning. It requires a coordinated approach from both lifetime and estate planning and corporate legal advisors to build a structure that works for the individual and reflects the family dynamic. In turn, this provides both flexibility and control to the original wealth holders (‘Parents’) whilst simultaneously distributing it, normally for the benefit of other family members (e.g. children and grandchildren).
Often billed as an alternative to Trusts, in our experience FICs can successfully accommodate or work alongside new or existing family trusts. Therefore, shareholders of the FIC can include Trustees of a family trust. As with any other private company limited by shares, the board of directors controls the company, but it may be structured to give the shareholders ultimate control over certain decisions of the board. The control of an individual shareholder can be fettered by reference to their share rights. Consequently, establishing the appropriate structure and share capital at the outset is key to the success of the FIC. For example, the Parents may hold the voting rights and take the position on the board of directors, and the junior family members hold the shares with rights to dividends only.
If formed to permit it, dividends can be declared on some shares and not others at any point in time, thus channelling wealth, for example, into the family Trust to the exclusion of other shareholders, or the holders of A shares and not B shares.
A common focal point for Parents considering an FIC is a wish to protect against the transfer of shares to third parties, as well as what happens on a shareholders’ death (‘Transmission’). These are important considerations on the formation of the company to ensure the shares follow the family line. Our advisors will work through the various points to consider and discuss as a family before the company is formed and the shares are gifted out to family members, reflecting the wishes of the Parents. The transfer or transmission of shares can be restricted by reference to criteria to qualify as a shareholder, such as a child or grandchild of the Parent or of the original shareholder (for those junior members).
It is worth seeking legal advice before deciding on which vehicle is best suited for your needs, taking into account tax issues, company law and family law. We can assist with setting up an FIC and advise on structural matters and estate planning that follow.