Creation of a Family Office and management of family wealth

How to separate private assets from business assets and comply with legal requirements? How to ensure that family members have access to income and assets when they need them?

We present an elementary guide that promises to guide investors in understanding, planning, establishing, and evolving a Family Office to effectively manage and protect the family's private assets for present and future generations.

Family Office Meaning

A family office is a professional organization or private office that oversees the assets and affairs of a family with significant wealth. Its purpose is to assist the founding family, making it a unique specialist service company.

Managing a family office is very similar to running a traditional business. It requires the same things that a professional business needs to function in the best possible way: a strategy, corporate governance, a team, and a quality infrastructure.

Families often set up a family office because they want their investments to perform well. Most often, family offices manage assets such as stocks, fixed income, private equity funds, and real estate.

In families where the wealth owners belong to the first generation, the office usually revolves around its founder, and investments are made for profit, to grow the wealth, sometimes for many years.

However, over time the activities branch out into other areas, such as managing the finances of family members, tax arrangements, coordinating legal matters, accounting to the family for their investments, data management, talent development... and much more. Specifically, a family office does not come with a fixed menu of services. Instead, it does what is necessary to meet the needs of the founder or the founding family.

The main activity areas of a family office

• Investment services: These services include building investment portfolios, choosing investment managers, advising on asset allocation, financial reporting, and communicating results. Investments may include “liquid” assets (assets that can be quickly and easily converted into cash) or “non-liquid” assets, such as real estate and businesses.
• Family wealth services: For example, administration of family wealth and business structures, tax planning, legal services, succession planning (passing wealth and responsibilities to others, such as the next generation), insurance, collectibles management, and philanthropic activities.
• Administration and concierge: Examples are bill payment, accounting, data management, private property management, and concierge services.

The size of the family's wealth

1. There are different opinions on the minimum amount of assets a family must invest to make a single-family office viable. In the past, most billionaires set up single-family offices. Today, however, it is not unusual for high-net-worth owners to start considering setting up an office when their total assets reach $100 million.

The complexity of the family

What makes a family “complex”? In the world of family offices, a family is considered complex if it has a large and growing number of members, generations, residences, businesses, and assets. The more complex a family is, the more difficult it is for a virtual family office or multi-family office to manage.

A large, complex family may consider that the only viable option is a single-family office. For smaller families or single-estate owners who require fewer services, however, it may be more cost-effective to set up a virtual family office or join a multi-family office.

However, according to UBS, more and more first-generation high-net-worth individuals are opting for a single-family office, especially to manage high-risk, family-specific investment portfolios, including direct and private equity investments.

The Needs of a Family Office

Some families require services from a family office that are exclusive to them and not shared with others. A single-family office is better positioned to offer customized services because it has its own dedicated team. In contrast, multi-family offices may find it more difficult to meet these needs.

Another advantage of creating a single-family office is that it creates a space dedicated solely to ensuring the family's sustainable success. So the office not only manages the family's assets and activities, but it also gives everyone the confidence of knowing that the family has a new place that is working hard to help them achieve their shared goals.

Some families also choose to have a single-family office because they want to keep their sensitive information private. Typically, only a few employees in a single-family office have access to that sensitive information, and barriers can be created if necessary.

A single-family office could also take on a broader role, such as managing family risks, for example by protecting the family's reputation and preparing for unforeseen events.

How H&CO can help

Our dedicated team advises families around the world on wealth continuity with a focus on family strategy, governance and family office creation.

H&CO's bilingual international tax professionals have been helping high net-worth individuals, family offices, clients with significant income, business owners, investors, global families, and foreign individuals with their international tax planning and compliance, for over 30 years. You can talk to our CPAs in one of our offices near you in Miami, Coral Gables, Aventura, or Fort Lauderdale. Our international CPAs are ready to assist you with all your international income tax planning and all your international tax services needs. 

If you are interested in some of our other global tax services, take a look at our business tax services or international tax services. 

We are ready for a successful engagement on this side of the world!