Dissolving a family office has complex ramifications — but it can also lead to new opportunities, including the creation of a new family office.
Philip Benjamin has been through this process with his family. Benjamin is a fourth-generation member of a family that had built a successful real estate business and accompanying family office. Although the family had transitioned out of day-to-day management, family members were heavily engaged as board members. Just under two decades ago, they sold the business to a REIT — and then had to decide whether to continue investing together.
They ultimately decided to dissolve their family office and let each family member invest as they chose. Benjamin and his parents and sister then created their own family office, the Benjamin Family Office, which serves his parents as G1, Benjamin and his sister as G2 and future generations through trust and estate planning.
The decision to disband the original family office followed naturally from the decision to sell the business, says Benjamin, who is head of the Benjamin Family Office and co-founder and managing partner at Colzen Capital.
“What was hard was the decision to sell the business, because it was doing very well,” he says. “One of the strokes of genius that my father and his third generation really made was they removed family members from active day-to-day management of the business onto a board. That allowed us to focus on hiring best-in-class operators to continue to grow the business quite successfully. By the time it was my father and his generation, there were 20-something people on the board. By my generation, it was going to be 40 or 50 people on the board, and it was going to become cumbersome.”
When the company management approached the family just before the housing market crash of 2008 and said they thought it was a good time to exit the market, the family voted to do so.
The family’s expansion — both in the number of family members and geographically — was one of the reasons they decided to sell. It was also one of the reasons they elected not to continue investing together.
“With the spreading out across generations, we had people in the Northeast, the Northwest, the Southeast. Culturally, and even from a values perspective, we had some different opinions and different values around how to manage money, particularly when we were getting to the third and fourth generations,” Benjamin says. “If we had taken all the proceeds and said, ‘OK, now we’re going to vote on how to allocate it,’ I think we would have run into conflict.”
The liquidity event gave all the family members new opportunities.
“It was a natural point where we could say, we’ve liquidated 98% of this family business — let’s give everybody the opportunity now to focus on what they want to do,” Benjamin says. For many of the family members, that meant establishing relationships with wealth managers. Some explored private markets.
“What it really unlocked for us was the ability to have a diversified portfolio. The vast majority of our net worth was just real estate, and we didn’t really have any diversification outside of that business that was meaningful,” Benjamin says.
Benjamin, his parents and his sister decided to pool their money and create a new family office. Their reasons stem from the family’s values and perspective on wealth as an asset to be preserved for future generations. The structure, values and rules that can be part of the family office setup help provide some accountability.
“With the way that we’ve structured the gifting of these shares — we did a lot of generation-skipping trusts and entities — I have almost a fiduciary obligation to manage this as a family office,” he says. “Also, conceptually and from a values perspective, I agree with the mentality and the concept of a family office — that there’s something that’s bigger than individuals, and that you have a multigenerational perspective on wealth, where you can use it, you can benefit from it, but it’s not just for you.”
Benjamin credits his parents for setting up this structure — and then passing control to the next generation.
“My father in particular was anticipating this well before the sale of this business,” Benjamin says. “For example, he chose to give shares of that company both to me and my sister, but he gave most of it to future generations. In establishing those structures, we were able to effectively, upon a liquidity event, inherit a family office.”
Today, he and his sister are co-trustees of the family office. Although Benjamin spends more time seeking investments and making investment decisions, he gets buy-in from his sister and also consults with his parents, though they no longer have official decision-making roles. Outside of the family, they have advisors and consultants they rely upon for investment diligence.
“I think sometimes older generations really hang on to control, and can, to some degree, even use it in a little bit of a manipulative way. I felt that — almost to a fault — it was the opposite in my family,” Benjamin says. “They really gave decision-making power to the next generations. We had good values and a good work ethic, and so we were able to inherit that and the decision-making responsibilities associated with it and have been good stewards so far.”
Decisions about how to invest through this new family office “happened a little bit organically,” Benjamin says.
“We did the obvious stuff, like establishing more significant wealth management relationships,” Benjamin says. “But we didn’t have much in private alts. We had a couple partners that we invested in real estate with, and we did well in the aftermath of the housing crisis, but that was still real estate, still very familiar.”
Benjamin started immersing himself in different ecosystems, learning more about how family offices operated and also looking at investment options, such as venture capital and private equity. He and his father invested in a few funds and a few direct investments.
“Over the course of about a decade, we got more and more confident and did more and more direct investing,” he says.
The overriding objective: “You’re a steward, and it’s your job to leave it better than you found it,” he says.