Avoiding Potential Beneficiary Claims Highlighted in the PFTC Context

Date: Jan 11 2018

Robert Galloway, Partner, Baker Hostetler LLP

The Private Family Trust Company structure has evolved from a new concept to one that is now established and used widely by family enterprises as a strategy for managing increasing complexity within their enterprise. With the evolution of the PFTC, there are hard questions that need to be asked such as how should and how does the PFTC contribute to a family’s most important goals and how does the PFTC protect the family’s most important assets? In this blog, Robert Galloway, Partner, Baker Hostetler raises unique questions to consider when operating a PFTC in order to maintain standards that fulfill the requirements of the PFTC.   


Avoiding Potential Beneficiary Claims Highlighted in the PFTC Context

One of the perceived benefits of a PFTC structure, instead of having an institutional trustee, is the ability of the family to influence control over operations and decision-making. Likewise, one of the objectives of a PFTC is to provide its directors with added liability protection, compared to an individual trustee, which results from the added corporate formality around decision-making. Being able to assure that these parallel objectives can be achieved (family influence and liability protection) requires diligence in the operation of a PFTC to avoid claims by trust beneficiaries. While the underlying legal claims of a PFTC beneficiary may be identical to any other beneficiary/trustee relationship, the PFTC context would seem to present some unique factors. Below are some concerns to be considered when thinking about potential beneficiary claims in the PFTC context:

  1. Family Business Assets: Complicated by potential conflicts of interest?
    • Prudent investment duty: When PFTC directors/officers are also owners of a business controlled/owned by family trusts, could this implicate questions of prudence?
    • Income production: Consider tension between a trust beneficiary’s interest in current income and the need of a business to reinvest capital for long-term growth.
  2. Trust Distribution Decisions: Objectivity, or family bias?
    • Trustee decisions must be made with impartiality. Query whether certain family members serving on a distribution committee could raise questions of bias.
    • Consider how the use of independent directors could result in more objective decisions, reducing potential for beneficiary claims.
  3. Corporate Formalities: Does a rigorous decision-making process exist or are activities mere window-dressing?
    • Is PFTC president merely “de facto” employee of family or patriarch/matriarch?
    • Are decisions made privately, and prior to board meetings, only to be later “ratified”?
    • Are there sufficient independent voices in decision-making?


To learn more on this topic and more please join us at the 2018 FOX Private Family Trust Company Workshop, February 21-22 in Fort Lauderdale. Attendance is restricted to executive and family members operating a PFTC or considering the option. Advisors must be approved prior to registration.