We have lovely clients, we’re going to call the McAllisters. (Not their real names, of course.) Like many of our clients, they have built a substantial estate. But ultimately, what matters most to them was legacy and raising kids (and now grandkids) who are grounded, polite, and anything but “entitled.” The primary focus of our meetings today is not on growing their net worth, but on using it effectively to impact the world in a lasting, positive way.
For example, last year, their granddaughter Shannon (again, not her actual name) approached the family about buying and rebranding a small group of coffee shops. Her vision was to create a mission-driven chain focused on sustainability and youth employment. Shannon was on fire about the idea, but to pull off what she had in mind would take more than strong coffee and pastries. She would need some serious wisdom, money, and more than a little of both.
Her parents invited her to present her idea at their quarterly family bank meeting. They also clearly stated that, even though they love her to the moon and back, providing financing for her vision was anything but guaranteed. They agreed to listen, evaluate, and help where they could … but ultimately, any help they provided was more likely than not going to be something other than financial help.
The big day came. This budding third-generation entrepreneur stood before her parents, aunt, cousin, and me as one of the family’s financial advisors—the “loan committee”—with a pitch deck, market research, and a detailed repayment plan. She knew it would not be easy, and it would most certainly not be a “gift.” It would come down to evaluating “vision, values, and viability.”
We first began by evaluating her and her proposal.
- What is her vision?
- Why does she want to take on this particular endeavor?
- What is the need, and how will her brand meet that need?
And :
- Does she have a repayment plan?
- Can she explain her cost of goods sold?
Instead of a loan from the “Bank of Mom & Dad” for a startup in the garage, the upcoming generations in your family could have the real-world expectations and experience that come from a formal funding agreement from your family bank … Imagine That!™
Table of Contents
What Is A Family Bank?
A family bank is not a federally insured institution, but it just might be one of the most powerful tools for preserving wealth and legacy across generations.
It’s a private, family-run structure—often anchored by a trust or LLC—that provides loans or capital to family members under a shared set of values and governance policies. Think of your family bank as a venture capital fund, philanthropy engine, and financial education lab, all rolled into one.
Whether used to help a grandchild buy their first home, support an adult child’s business, or fund a cause the family holds dear, your family bank is about more than money. It’s about meaning.
Why Use Your Family Bank?
A Tool for Teaching Financial Responsibility
Rather than give outright gifts (which are also subject to gift tax exemptions), families use a loan-based approach to cultivate accountability. Heirs are asked to prepare proposals, agree to repayment terms, and often present their case to a committee.
Research shows that many wealthy families struggle with preparing heirs for financial responsibility. One U.S. Trust study found that only 38% of HNW individuals strongly believed their children would be able to handle an inheritance well. Your family bank can shift that confidence.
Reinforces Family Values and Vision
Your family bank can tie lending or grants to a purpose:
- Pursuing higher education
- Buying a home
- Starting a business
- Engaging in public service
Some banks even forgive loans upon achieving family-defined milestones—like completing a degree or working in an underserved community.
One family’s charter stated: “We lend to support grit, generosity, and growth.” Every loan proposal is judged on those three qualities.
Builds Unity While Preventing Entitlement
With a clear mission and transparent rules of engagement, your family bank minimizes surprises—and the resentment that can come with them. Structured decision-making (like having a family investment committee) can help maintain harmony and fairness.
This transparency is key. Instead of whispered conversations and unequal gifts, your family bank offers an agreed-upon process. Decisions are documented. Meetings are held. Values are lived out in real time.
Common Structures of Family Banks
There’s no one-size-fits-all, but common elements include:
- Irrevocable Trusts or Dynasty Trusts: Hold and protect assets for the long-term.
- Family LLCs or Partnerships: Allow for investment activity and intra-family loans.
- Investment Committees or Family Councils: Decide on loan terms, evaluate requests.
- Family Constitution or Charter: Documents the family’s values, mission, and rules.
- Optional: Private Foundations or DAFs: Used to fund charitable causes alongside lending.
When Is Your Family Ready For A Family Bank?
Families often consider a family bank when:
- Their estate exceeds $5-10 million
- They anticipate multiple generations being involved
- They want to formalize support for education, housing, or entrepreneurship
- They value teaching stewardship and reinforcing a legacy
It’s not about complexity for complexity’s sake—it’s about alignment. If your family has wealth, values, and vision, you may be ready.
Pitfalls To Avoid With A Family Bank Strategy
- Unclear Rules: Loans without terms can quickly be seen as gifts. Write it down.
- Favoritism: Transparency prevents (most) resentment.
- Lack of Successor Planning: Rotate in the next generation. Train them early.
One family we advised required that every member under 30 shadow a committee meeting before applying for their first loan. Another invites teens to vote (non-binding) on charitable causes to build comfort with responsibility.
Imagine...
What if your family’s next great venture, degree, or charitable gift was financed by your shared vision—rather than just your checkbook? What if your heirs didn’t just inherit money, but inherited purpose?
Your family bank is more than a tool. It’s a tradition … Imagine That!™
Imagine That!™ is a complimentary bi-monthly newsletter provided by Wealth Legacy Group®, Inc. that addresses various topics of interest for high-net-worth and high-income business owners, professionals, executives and their families. Sign up to receive our monthly newsletter here.
R. J. Kelly, Wealth Legacy Group®, Inc. – May / June 2025
Header image on Canva, one design use license.
