An interdisciplinary advisory approach to the ownership of shared assets

(For the purposes of this article we are using “interdisciplinary approach” to mean conversations between legal and insurance professionals working with the family enterprise.)

As family enterprise advisors, you are probably well aware that pre-planning discussions help owners navigate the complexity and liability associated with owning shared assets – specifically planning that addresses proper ownership structures, potential tax liabilities, potential third party complaints, sibling conflicts of owning inherited and shared assets, and evaluation of final exit clauses.

Of utmost importance is understanding the governance structure of your client’s family and family enterprise. Without this understanding, it is difficult to put in place the proper processes to address the needs of the family business and reduce your client’s liability exposure from third-party complaints. The challenge most family owned companies face is conducting an annual review of their organizational structure, including all of the special purpose entities (limited partnerships, limited liability companies, trusts). Following this review they still have to make sure that the insurance strategy protects liability for their role and for the activities of the entity they serve.

Lawyers and insurance professionals working together to understand the governance structures can save time and money and help facilitate the family’s review before making decisions on shared assets.

It is equally important that your clients, before making key decisions on shared assets, be mindful of the impact these decisions may have on the various stakeholders within the family enterprise  — as well as on beneficiaries.

For example: consider the case of parents gifting a vacation property to their children. These questions will most likely come up and should be discussed during a family meeting.

• Are the next gen siblings going to pay the real estate taxes or is there a vehicle to pre-fund this ongoing property ownership cost?

• Who will have responsibility for maintenance of the property including proper insurance?

• What sort of exit clause should exist in the event someone wants out?

Although there are many other questions that can arise, advisors who work together can provide the holistic and integrated solutions that benefit family owners and their companies.

We invite you to learn more about this topic by attending the 2014 afhe Annual Conference in Las Vegas April 23-25 where Linda Bourn will be one of the presenters discussing the above items with members of the Crystal family and its family business, Crystal & Company.

About the Contributors

Michael de Leon Hawthorne is the president and director of the afhe board (Attorneys for Family-held Enterprises) and is a partner at Thompson Coburn in Washington, DC. He has a diverse transactional practice focusing on the corporate and securities needs of private and public businesses — from startups to multi-billion-dollar enterprises — throughout the United States in the telecommunications, natural resources, health care, energy, restaurant and technology industries. Michael can be reached at [email protected].

Linda Bourn is the leader of Family Enterprise Services for Crystal & Company, providing holistic solutions to closely held businesses, family offices, private trust companies and RIA firms. She has 18 years experience in risk and insurance management and is a former member of the FFI Board. Linda can be reached at [email protected].

Stay tuned next week for another issue of The Practitioner.

Yours in Practice,

The Practitioner