Holding companies are entities that do not manufacture anything, sell products or services, but rather, exist for the sole purpose of owning and controlling other companies. Holding companies do not conduct any other business operations. Holding companies always control stock or membership interests in other companies.
How Does a Family Holding Company Work?
When it comes to a family holding company, it exists for the purpose of keeping control of your assets while transferring ownership to someone in your family. You will need to first establish a corporation giving yourself a relative majority of the stock. Then, you can divide the rest of the stock among family members.
Benefits of Family Holding Company
Holding companies provide many benefits such as lower taxes and privacy. Family companies require all the more planning, with more potential benefits, e.g. assisting with succession plans and helping teach younger children about finances.
By placing operating companies and assets into a holding company, it provides a liability shield. The debts of each subsidiary belong to that subsidiary, which can keep your assets safe to pass on to your children eventually.
By putting your assets into a family holding company you can potentially lower your tax liability while protecting your assets.
Larger Funding Pool
By setting up a family holding company, you will have a larger source of funds. The family LLC can invest in stocks, bonds, and real estate, or even use resources for mutual funds and start-up businesses.
Setting up a family holding company means you have the ability to capitalize on markets and centralize management all around.
Working with your family as a holding company provides transparency. Whether this is for the managers, lenders, or even the community members and shareholders.
If you are looking to get started on estate planning, a family holding company is an efficient method for estate planning and asset transition across generations.
Starting a Family Holding Company
- Set up a trust in your name
- Choose a trustee
- Fund the trust
In order to fund a trust, you can do so with a few different sources of funds.
- Personal property and assets: Most assets do not have formal titles or deeds. This can include clothing, furniture, or jewelry. Although there are no titles, these can still be transferred into a trust. This can be done by signing a general transfer document that states the property is now owned by the Trustee of the Trust. Once the transfer document is signed, it needs to be kept with the Trust records.
- Bank accounts and other financial accounts
- Real estate: Transferring real estate to your Trust requires signing a deed to transfer your interest in the property to the Trust. The deed must then be recorded with the county. Each state and county has different requirements for how this must be recorded.
- Business interests
- Life insurance
- Retirement accounts
How Much Does it Cost to Create
a Family Holding Company?
Creating a family holding company does cost money. The filing fee to set up a family holding company is $100 for processing by mail, with an extra fee if you file online. This is a great price considering the amount of benefits of a family holding company.
How a Family Holding Company Builds Wealth
For wealthy families, a family holding company is useful for avoiding severe estate taxes when a parent passes away. It can also help to build wealth over time. For example, if you put stock shares into a family holding company and this appreciates over time, then the total value increases. If there are also assets, such as real estate, in this account, then the holding company is a vessel to reduce the taxes that will be paid on all of these assets. This is how you can build wealth by placing family holdings into a holding company.
Should You Start a Family Holding company?
Family holding companies are best for wealthy families. Especially if you have a lot of assets within your family. Setting up a family personal holding company lets you keep control of your assets and transfer ownership of them.
Even if you establish a holding company, you can give yourself the relative majority of the stock and divide the rest among the family members. Then you can give most assets to the holding company as a gift, and do so tax-free.
If you end up being sued, creditors can only go after the shares that you own. The rest of the shares will be safe in the holding company. If you do not have a large number of assets or businesses then you may not need to set up a holding company.
Where to Set Up a Family Holding Company
To start a holding company in the state of Delaware, there are few basic steps to follow. These are required when starting an LLC or a corporation in the state. First off, the address of the business must be within the state. All Delaware holding companies must adhere to state laws regarding formation, taxation, operation, and contracts formed.
Creating a family holding company is similar to that of a regular holding company. This is why it is essential to use the help of a lawyer in order to maintain a successful Delaware holding company. Your lawyer can walk you through the steps to ensure that you are legally compliant, and so that your assets are properly protected affording you legal protection.