Over the last several years, the number of single family offices has grown significantly, with more than 3100 offices in North America. As the economy and markets have surged since the Great Recession, the number of families with millions to oversee has grown, and a number of them have established a family office.
What is a family office, when do you determine that creating a family office could serve your family, what are the considerations, and what impact has our 2020 experience had on these decisions? And, even if the size or complexity of your financial statement doesn’t justify the creation of a family office, how can you benefit from a family office approach to the management of estate and financial plans?
Typically, a family office provides a variety of services to a very wealthy family, including, but not limited to, the following: a) Investment Management, b) Cash Management, c) Risk Management, d) Financial Planning, e) Estate Planning, f) Tax Planning, g) Charitable Gift Planning, and h) Multi-generational planning.
Family offices can be a single-family office, serving just one family. Typically, these are found when a family has $100 million or more in assets. Invested assets are generally comprised of business interests, real estate, and marketable securities. Personal assets can include multiple homes, as well as autos, boats, aircraft, and art, among other things. Such families are often interested in having the family office serve as their own wealth management business in order to oversee all aspects of the family’s wealth. By starting their own family office, these families can retain control of their assets, maintain privacy, pursue the family’s long-term goals, and benefit from the combined wealth of multiple generations.
Multi-family offices provide similar services to a limited number of families, each of which typically has assets exceeding $20 million. The multi-family office offers integrated services which are customized to meet the needs of each family. The families served receive the benefits of a family office, but do not have to create and run it as a separate business.
Family offices offer a multi-faceted approach to wealth management in which attorneys, CPAs, insurance professionals and financial and investment advisors work together to serve the family. Although a single-family office usually has its own staff, many ultra-high net worth families still choose to utilize third-party professionals for cost effectiveness, as compared to hiring a large internal team.
Even those families without a $20 million net worth can benefit from the team approach. The roles?
The primary role of the financial advisory team is to work with the family through the discovery process, and then develop strategies, goals, and plans of action to accomplish stated purposes. This often starts with discussion and reflection around purpose and legacy, and plans regarding not only the transmission of assets, but also the family’s values, and the way it wants to serve and be engaged with, the larger community.
This includes an evaluation of cash flows needed to maintain lifestyle, identification of best assets for charitable giving, and the ideal way to transfer assets to following generations. It also includes discussion and implementation of plans to put assets and cash flow to work in ways which meet the family’s goals and reflects their business experience and temperament. It does include an analysis of any risks the family may face, including personal security, home security, and business and markets volatility, among other risks. Investment specialists are typically a part of this team.
Estate Planning Attorney
The estate planning attorney is an integral part of the team. As preferences are identified, and plans are made, the estate planning attorney will assist in thinking through the legal ramifications of the plans, and draft appropriate documents. They will assist in thinking through how to structure powers and authorities, so that as the leading generation is too ill to care for themselves, people they trust will be able to step in and assist with decisions. This will allow money and property to be distributed in the way they wish, after they pass.
The accountant or CPA, in conjunction with the estate planning attorney and financial advisor, will provide essential tax planning strategies and advice. The CPA will help minimize tax outcomes of decisions, as that fits with the overall plan, and will prepare tax documents for submission to the various taxing and regulatory authorities. For 2020, the federal gift and estate tax exclusion amount is $11.58 million for individuals, and $23.16 million for married couples.
The insurance professional in conjunction with the rest of the team will help assess risks and offer advice as to how to mitigate and transfer that risk. The insurance professional will provide insurance solutions, which help to reduce or transfer identified risks. These risks are as broad as providing liquidity for estate tax or charitable gifting at time of death to insuring homes, business interests, commercial properties, and residential property. These risks can also include lifestyle risks for things such as kidnapping and ransom.
Whether your family could benefit from a single-family office, a multi-family office, or is on the way, a team of experienced professionals can be a significant benefit. They can assist you in clarifying goals and purpose, help you make decisions regarding and oversight of invested assets, assist in reducing taxes, and assure that you and family members are cared for across generations. You are welcome to reach out to us if you would like to have a conversation.