Citi Private Bank

Browser Requirement

To best view Citi Private Bank's site and for a better overall experience, please update your browser to a newer version using the links below.

System Outage
Citi Private Bank logo

How will you pass down your family business?


By Todd Skobinsky, Global Head of Special Assets, Citi Private Bank

September 3, 2019Posted InWealth Advisory

Wealthy individuals looking to create an effective estate plan should give special consideration to their unique assets to ensure a tax-efficient transfer to future generations, or risk facing serious unintended complications.

‘Special assets’ are often identified as people’s prized possessions (such as the family business, real estate, and art collections, etc.) that have an intrinsic worth beyond their current price or profitability.

Unlike common stock which can be bought and sold in an instant, these prized possessions take a lifetime to develop and amass and may even serve as an integral part in establishing a family’s identity and legacy.  If not settled properly into a trust structure, these unique assets may be subject to significant taxes.

Utilizing a trust structure can also provide further benefits by defining rights and privileges in writing to navigate delicate family dynamics and possible competing interest, especially with regards to family businesses.  A trust can help ensure you and your heirs have peace of mind that their special assets will be safeguarded and can be kept within the family for generations.

Keeping it in the family

A common challenge faced by family leaders is how best to pass the ownership of the family company to their children, grandchildren, and future generations. In many cases, ineffective or no estate planning has resulted in a loss of value for the business, family infighting, or both.

One issue in particular many family leaders struggle with is ensuring the efficient handover of the family business whilst simultaneously supporting their children with varying and sometimes competing interests. More often than not, family members will have different career aspirations where one child may desire to take over the helm of the family business and another child might have completely different interests.

To address this, ensuring all children are fairly treated, and keeping the business within the family, business owners could recapitalize their companies by creating different share classes. One share class could retain voting rights and another would lose voting rights, but still benefit from dividends distributed by the company.

If executed correctly, recapitalization could also allow for valuation discounts, which could result in increased gifting opportunities. Both classes of stock can still offer financial wellbeing for family members and allows the business owner to decide the roles heirs would have vis-à-vis the company.

The benefits of a trust

A bespoke trust structure can ensure that a family business is safeguarded and retained within the family for generations to come. Trusts can not only provide for privacy and the tax efficient transfer of wealth, but also can serve to incorporate a business plan, where family leaders can define precisely how they wish their business to be managed in the future.

Ultimately, all ultra-high net worth individuals want the peace of mind in knowing that their prized possessions will continue to provide for and be enjoyed by future generations as they intend. It is important individuals carefully consider how to structure their special assets, such as family businesses, as part of a holistic estate plan to safeguard these assets for years to come.

Citi Private Bank Trust has a dedicated team of experts who will work closely with your tax and legal advisors to structure your prized possessions in a tax-efficient manner, while maintaining privacy and avoiding the costly delays of probate. If you would like to find out more about how we can help you, please contact your Private Banker.

The views expressed herein are for informational purposes only and are those of the author and do not necessarily reflect the views of Citigroup Inc. All opinions are subject to change without notice.