Pros and Cons of Starting a Family Investment

Our family has tossed around the idea of building some sort of financial investment together – whether that be through joint ownership of a rental property; building a family trust (aka ‘family bank’) or some other shared financial investment.

We come from a long line of generations where each generation has been separate and distinct. One of my Father’s favorite sayings was ‘never do business with family’. That said, there are reasons a family might want to start a joint investment pool – as well as cautions in doing so.

So, what are some pros and cons of starting a family investment?

I’m not really talking about a family business – more like joint investing. Parents, grandparents and children all contributing money or assets to start an investment pool.

Sam Walton created one when he started the family partnership with his wife and children. It held the stock from the start of Walmart.

Bill Gates has one, he sells Microsoft stock each year to fund a family limited liability investment company.

Pros

Bind current and future generations together.

Family members would be forced to gather to manage the invested assets. Although we hold an annual family meeting with parents and grandparents, we don’t have anything substantial to really discuss. Holding joint assets would certainly give us that.

Provide funding for ideals the family values.

Assuming the investments were successful and made money over time, the funds could be designated for whatever the family as a whole values – education, entrepreneurship, medical help, or even philanthropy.

Build a sense of family identity.

Having joint property helps maintain a family identify across time. Members get a sense of ‘this is what our family does’. ‘This is part of who we are’. Coming together to manage the assets provides a forum for passing along family stories and creating new relationships within the family.

Build a financial legacy.

Starting here, starting now, your family would created and maintain a legacy. Future generations would learn first hand that their legacy is to extend a helping hand across generations – financially and otherwise.

Use as a forum to teach financial literacy.

As the next generation matures, they can be taught to take the reins of managing the family pool of assets.

Avoid some taxes.

Family members who are members of a family llc or partnership with investments already own the assets in them. No estate taxes are due on that portion that each member already owns.

Cons

Hard to get family units to agree on contributing towards the pot.

Unless there is a gushing fountain spewing excess cash into the family, it can be very difficult to sacrifice individual family unit resources – to a pool for use by any member. Often, families at this early stage may only have one generation capable of contributing (the elders) and they may fear relinquishing control of their funds.

Differing ideas on how the pot can be used.

Each family unit is different and may have different needs or wants based on their own family’s time line. While some may be ready to start funding college, others may not yet even have children. While some may be eager to help out parents, others may resent having to do so. While some may have specific causes they hold dear, others have alternate ones, or don’t wish to give.

Hesitancy to engage with family members in financial affairs.

Because families at our level haven’t been in a situation where they have common property, the members hesitate to enter that situation. They fear loss of control, complexities that result, possibilities of disagreements/power struggles and family squabbles, and differing experience, ability and interest levels.

Does your family pool assets in order to invest?