Advantages and disadvantages of setting up a family trust

Organising a family’s real estate assets requires more than just having good assets: it requires structure, clear rules and predictable taxation. 

At Borneo Advisors, we assist families and private investors in deciding whether a wealth management company is the best way to protect, grow, and transfer their wealth using professional criteria.

What is (and what is not) a family trust company

A asset management company is a commercial entity whose main purpose is to hold and manage assets (e.g. rental properties, cash or shares), without engaging in intensive business activity. Its purpose is to separate risks, organise ownership and facilitate governance and succession. It is not the same as an “operating company”, nor is it a universal tax shortcut: there are rules, costs and limits that must be evaluated before taking the plunge.

In mandates where the objective is to organise assets, professionalise decision-making and plan succession, we work with corporate structures suited to the family profile, the type of assets and the time horizon, comparing alternatives for investment vehicles to choose the one that best balances control, cost and flexibility.

When is it usually assessed?

Before discussing the pros and cons, consider the types of situations in which this approach may make sense:

• Several properties with rentals and contracts requiring professional management.

• Need to separate risks between the personal and financial spheres.

• Succession plan in stages, with the entry of new generations.

• Volume of assets requiring reporting and recurring financial control.

Advantages: why you might be interested

The decision is not made based on a single advantage, but rather on the package of benefits it brings to the estate as a whole.

1) Legal separation and protection of personal assets

Society acts as a perimeter: on one side, private life; on the other, property and its contracts. Well designed, it reduces exposure to claims and facilitates the sensible use of guarantees.

2) Family governance and clear rules

The board or the committee sets policies: dividends, debt, CAPEX, asset selection and sale. Conflicts are managed through statutes, shareholder agreements and a family protocol that regulates entries and exits.

3) Professionalisation of management

The company allows you to hire management, establish KPIs and create a portfolio budget: NOI, net yield, cash-on-cash, CAPEX plan and divestment criteria. Comparable and repeatable decisions.

4) Funding and bargaining power

A consolidated balance sheet and a income history improve dialogue with banks and suppliers. Negotiations are based on data and a track record that inspires confidence.

5) Staggered succession planning

Shares facilitate orderly transfers (partial donations, graduated political rights, drag-along/tag-along clauses), avoiding complex undivided ownership of real estate.

Disadvantages: what you should bear in mind

Setting up a family holding company also entails costs and obligations. Ignoring them is the quickest route to frustration.

1) Fixed costs and formalities

Accounting, corporation tax, auditing (if applicable), company books, meetings, form 232 for related-party transactions, and legal advice. If the size does not compensate for them, overheads can be a burden.

2) Taxation: it’s not all advantages

Depending on the composition of assets and the type of income, double taxation may occur (the company is taxed on its profits and the partners on dividends). In addition, certain incentives may not apply if the entity is purely patrimonial and does not meet the criteria for economic activity.

3) Contributing real estate has tolls

The contribution of real estate to the company may generate tax and notary costs, as well as registration fees and, where applicable, indirect taxation. The cash flow must be modelled before a single deed is moved.

4) Rules on related-party transactions

Market prices, well-documented intra-group contracts and justification of services rendered (management, administration). Informality is costly in inspections.

5) Complexity of governance

More family does not always mean better decisions. If processes and rights/obligations are not established from the outset, the governing body becomes a battleground.

Practical taxation in 2026: key ideas for decision-making

We will not go into specific types (these will depend on applicable regulations and your autonomous community), but we will discuss the principles that should guide your analysis:

• Income map: rents, capital gains on sales, dividends from investees and financial returns. Each flow is taxed differently and affects the family’s take-home pay.

• Double layer: assesses the combined effect of taxation on the company and its shareholders (dividends, remuneration, shareholder loans).

• Economic activity: when leasing, having personal and material resources (e.g., a person hired with sufficient working hours and adequate resources) may change the tax treatment and access to certain incentives.

• Succession: design the distribution of shares with a view to donation or inheritance and avoid concentrations that block decisions.

• Unrealised capital gains: if you contribute revalued property, analyse the tax and accounting treatment to avoid surprises.

Taxation must be integrated into a financial model with scenarios for purchase, maintenance and divestment. The aim is not to pay less in a single year, but to optimise net profitability over time.

Costs and obligations: the real “price tag” of operating a property company

Before setting up, list all recurring and non-recurring costs on a sheet of paper:

• Constitution: articles of association, notary, registration, banking, census registration.

• Accounting and reporting: monthly/quarterly closing, annual accounts.

• Taxation: corporation tax, information forms, related-party transactions.

• Legal: board secretariat, minutes, agreements, family protocol.

• Audit (if applicable): consolidation criteria, limits and exemptions.

This shows you the break-even point: the volume of income and assets at which it becomes more profitable to professionalise under a company structure than under direct ownership.

How to assemble it correctly: steps and decisions that make a difference

Creating a company is easy; designing it to function effectively is what matters. This is the approach we take with families:

1) Thesis and perimeter

Define which assets will be included (and which will not), the debt policy, the target dividend and the acceptable level of risk. Without a thesis, the company drifts.

2) Articles of association and shareholders’ agreement

It regulates political rights, transfer of shares, entry of new generations, internal liquidity policy and conflict resolution. A family protocol avoids surprises.

3) Government and roles

Board with a clear agenda, decision schedule and monitoring KPIs (NOI, net profitability, cash-on-cash, yield on cost, debt, vacancy). Management is evaluated with data, not perceptions. vacancy). Management is evaluated with data, not perceptions.

4) Operations and control

Contracts with suppliers, rental management SLAs, CAPEX plans and preventive maintenance, and releasing policies. All documented and budgeted.

5) Taxation and cash flow

Model with scenarios (base, conservative, stressed) that quantifies taxes, dividends, amortisations and hedging of rates if there is debt.

Common mistakes when setting up a holding company (and how to avoid them)

A brief introduction to provide context: these are almost always design flaws rather than execution flaws.

Mistake 1: “Let’s put it together and see what happens.”

Without a strategy or policies, the result is a society that accumulates property without a plan. Solution: investment document and risk framework before signing.

Mistake 2: confusing tax savings with value creation

A structure can save on one tax and lose in another way (double layer, fixed costs, less flexibility). Solution: look at IRR and cash flow curve over 5-10 years.

Error 3: disorder in linked operations

Services without contracts, unsupported charges, improvised transfer prices. Solution: intra-group contracts, invoicing and supporting documentation.

Mistake 4: forgetting about succession

Without planning, the next generation inherits conflicts. Solution: protocol, rules of entry and exit, and training for future decision-makers.

What if it’s not the best vehicle for your family? Alternatives to consider

An operating limited company leasing with its own resources, a holding company that groups together holdings, or specialised vehicles for certain objectives (e.g. structures with operators for build-to-rent or tertiary). The key is that the investment vehicle should be appropriate for the type of assets, risk tolerance, and family architecture.

Shall we shape your family structure?

If you are considering creating a holding company, or need to review the one you already have, at Borneo Advisors we analyse your case with figures, governance and a clear roadmap. We organise the scope, define rules and leave a model that allows decisions to be made smoothly. 

Contact us and we will design a structure that truly works for you.