The following story is based on an actual series of events with some names and circumstances fictionalised and any similarity to the name, character or history of any person is entirely coincidental and unintentional. We will be looking at how a family foundation can help when trust crumbles within a family.
Uncle Tan was shaken. It had just been revealed to him that something was not right in the books of the family’s hardware business.
“It can’t be!” Uncle Tan was in denial even though San, the third of five children, showed him the books where the numbers didn’t add up. What was unbelievable to Uncle Tan was not the books but the accusation that Da Ge, his eldest son, has been putting his hand in the till.
Business Runs In The Family
Patriarch Tan has been happy and contented with Da Ge ably stepping into his shoes. As what one steeped in traditions would want, his number one offspring fitted to a ‘T’ the role of running the family business so that the 72-year-old founder could take a back seat and enjoy his golden years.
Seeing how Da Ge has taken the bull by the horns in steering the company through some hiccups in business, Uncle Tan’s confidence in Da Ge grew over time and he showed his pleasure by giving his trusted son a free rein in the operations of the business.
He was also contemplating on rewarding Da Ge with the largest share of the equity of the company and the rest, equally among the other son and three daughters. This, he felt, would sort of make up for the lack of attention for his first-born who grew up with scant fatherly love and attention.
As one not attuned to showing affection, he neglected Da Ge and just focused on building up his business in his younger days. To him, his affection could be shown later by rightfully transferring his significant wealth to the eldest male offspring.
And as Da Ge won his father’s heart with his business acumen, it blindsided Uncle Tan to his wayward ways. Easy success and access to cash from business transactions got to Da Ge and he became a spendthrift, splashing his money on wine, women and song and ego-tripping with his growing popularity and following by his cohorts of fan-friends.
Tackling The Root Cause
San got wind of the missing cash from his former classmate, who was keeping books for the company. After trying to talk to his brother but to no avail, he decided to bring the matter to his father.
Knowing that his father would be in disbelief that his trustworthy son would be capable of endangering the financial health of the business, San thought it was best to go to his father with a solution rather than just the problem.
He knew his father would be more receptive to a proposition for the betterment of the business rather than be presented with the problem that stemmed from his ‘trustworthy’ son.
He could see that his father, when troubled that the foundation of trust had crumbled, welcomed his proposition that offered a solution. The older Tan was eager to meet San’s estate-planner friend to find out more about Family Foundation which would better resolve matters with Da Ge. He finally agreed to establish his own Family Foundation with a set of values and rules that ensured continuity and protection of capital.
A Family Foundation can be established to hold and manage assets for the benefit of your family. It offers the benefits of a Trust and the structure of an independent company with protection of assets not available in others.
The Importance Of Family Foundation
For the Tan family, the Family Foundation offered an immediate resolution of the delicate situation rather than leaving the decision making on family business matters solely in the hands of Da Ker.
The Founder of the family business, in this case Uncle Tan, can assume the role of Chairman of a Council to be set up under the Family Foundation. His five children can be appointed as members of the Council, who will be charged with managing the Family Foundation.
The Council assumes the task of decision making for the family business through the Council members’ vote of resolutions tabled for their consideration. This effectively makes it a collective decision-making involving relevant members of the family including the Founder instead of resting it in the hands of a sole family member.
Family governance is possible with the crafting of a Family Charter and the formation of a Family Council as it effectively becomes a platform or a forum for Family Council Members to voice their views, thus avoiding miscommunication or misunderstanding pertaining to the family business. It also facilitates the establishment of common rules and procedures to follow to minimise any possible disputes.
Ring Fencing Family Wealth
The Family Foundation serves as an essential instrument to safeguard business succession only among family members. This is achieved through ring fencing that keeps out outsiders and unwelcomed parties. This preserves the family business for the multi-generation of family members.
Through deliberation and consultation, the Council can agree to a mutually beneficial wealth distribution formula. This pre-determined formula of shareholding in the family business based on identified scenarios will avert any possible future family squabbles that can break up the family.
With Uncle Tan having his say and expressing his wish on succession and wealth distribution, his children being part of the decision-making process will see the distribution as fair.
Comprehensive estate planning solutions such as the above can be achieved by consulting an experienced estate planner working with an established company such as Rockwills.
About Rockwills International Group
Rockwills International Group, now in its 27th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and hold more than RM25 billion in assets under trust.