What is a family office?
A single family office is a private company formed to provide a cost-effective approach to servicing a family’s wealth and long-term planning goals. A family office can assist with complex wealth, investment, transactional, and trust structuring matters, and also provide centralized management for a family’s financial and personal needs. Shared values can be structured for multiple generations. An executive team often provides a single point of contact for family members to participate in the family’s mission, vision, planning, asset management, investment oversight, and philanthropy.
Creating a family office, however, should be done with careful planning and consideration. A family office can serve as few or as many functions as desired, depending on a family’s needs. Over time, the family office range of services can grow or change. As a family’s needs change, the family office components should be revisited.
Who might benefit from creating a family office?
Families with significant wealth and a diversity of needs and situations may benefit from a family office. While there is no bright line for the amount of wealth needed to create a family office, generally a family office is most appropriate for a family with $100–200 million or more of investable assets. Whether or not to form a family office depends not only on a family’s net worth, but also a family’s wishes on how to spend its time pertaining to investing, managing, and spending its wealth. A family office can be helpful to provide coordination and management of complex assets and to preserve wealth over multiple generations. Any of the following situations for a family with significant wealth may influence a discussion about how and whether to form a family office:
- Anticipation of selling an operating business, resulting in a significant liquidity event (or families who have already experienced a significant liquidity event);
- Ownership or management of multiple entities, including but not limited to investment entities and operating businesses;
- Consideration of fund formation and tax planning;
- Desire to hire or outsource employees to manage certain functions;
- Multiple trusts for the benefit of various family members, often holding complex assets;
- Desire to have coordinated trustee and other fiduciary designations;
- Wealth across multiple generations, or intended to last multiple generations;
- Desire to protect significant family wealth;
- Desire to provide tax-efficient investment structures;
- Charitable intent, with a desire for multiple family members to participate in planning for philanthropic goals; and
- Desire to have coordinated operation of family finances, bill paying, and the like.
Families with business ownership shared among multiple family members or entities, including trusts, may benefit from a family office. A family office can assist with investment structures for assets received by the family office.
Mission for the family office
Single family offices come in varying sizes with a multitude of elements. While each family will have a unique mission, a family office should have a well-conceived plan for structure, operation, and use for all of the relevant family members. Considering the mission at the outset of formation will help preserve the longevity for the family office. A family office intended to serve current and future generations should be structured to endure changing goals and family composition, and with a clear definition of which family members will be serviced going forward.
What does a family office do?
A family office often helps coordinate and manage investment, legal, and tax advice for matters that may impact multiple family members or entities. Having a streamlined approach to such matters can provide consistent and cost-effective solutions.
Family offices are often structured to manage family assets, including not only cash and marketable securities, but also private equity funds, alternative investments, real estate, and other entities. A family office often involves fund formation and management with careful tax considerations.
A family office can help coordinate estate plans across generations, helping to ensure tax-efficient and thoughtful wealth transfer. A family office can also help track, maintain, and manage family trusts and other planning entities. Proper estate planning is important prior to a business sale, liquidity or acquisition event. A family office will often help coordinate these estate planning services needed for various family members at the time of these large transactions.
Family offices often assist with legal advice, accounting and tax services, risk management, charitable planning, and succession planning across various entities.
How to get started?
Families seeking to start, or at least consider, creating a family office should seek legal counsel to consider the most appropriate structure and entities to comprise the family office. In addition to structure, some of the most important elements for a family to think about when initiating a family office include:
- Defining the business purpose for the single family office;
- Seeking proper legal counsel for formation of the family office;
- Maximizing tax benefits and connecting with appropriate tax professionals;
- Starting the conversation with family members and children or grandchildren to support the family’s goals;
- Creating a succession plan;
- Coordinating long-term investment strategies; and
- Creating a charitable giving plan and related entities.
The services provided by a family office can be as unique as each family. Careful considerations of a family’s long-term goals will help launch the process.
