What Are the Advantages of a Family Office?

By Pamela A. Mosiello  |  February 15, 2021

As the affairs of many high-net-worth individuals become more complex and their transactions increasingly numerous, they might benefit from the services of a family office. A family office’s general purpose is to keep the complex business and personal affairs of a high-net-worth family in a centralized and systematic fashion, similar to that of a successfully run business entity.  A family office supports not only the day-to-day management of the family operations but also the strategic long-term goals and wishes of the family.

Traditionally, a family office typically operated as its own separate entity, and its sole purpose was to cater to every personal and financial/business need of an ultra-high-net-worth family.  With the passage of time, multi-family offices have become a popular choice for wealthy families that do not view a single-family office as a feasible choice. 

Multi-family offices typically provide similar key services as provided by a traditional single-family office. The main difference is that a multi-family office provides these key services within a larger organization (such as a mid-sized or larger accounting firm) and caters to multiple high-net-worth families.  Most of these families also engage that same accounting firm to prepare their personal and business income tax returns.  Multi-family offices offer a variety of professionals with different areas of expertise in a wide range of specialty areas available on demand. Keeping family office and tax services operating under the same roof cohesively as one big team can provide enhanced benefits from both perspectives. 

What Are the Key Functions of a Family Office?

Before diving into the enhanced benefits of keeping both family office and tax services within the same firm, it is important to highlight the following key functions of a family office:

1. Record-keeping of all financial/personal/business assets

2. Bill pay functions and quarterly cash transfer recommendations based on recurring bill analyses

3. Provide monthly financial reports showing cash flow, income/expenses and a statement of assets and liabilities customized to the family’s preferences

4. Coordination of income tax payments

5. Filing employee and household payroll tax returns for domestic employees

6. Budgeting forecasts

7. Coordinating with vendors (insurance carriers, banks, lenders, etc.)

8.  Management and maintenance of family-owned businesses and properties

9. Philanthropic planning

10. Lifestyle management/concierge services

11. Quarterly meetings with the family’s outside advisors in order to coordinate long-term goals as well as discuss any new developments

12. Multi-generational planning which includes establishing and fostering relationships with the family’s younger generation in order to facilitate the progression of the family’s vision for future years in a tax-efficient manner

Benefits of a Multi-Family Office and Tax Services Operating Within the
Same Firm

Following are some examples of the enhanced benefits of maintaining both family office services and tax services/department within the same firm:

1. As the family office manages/oversees a family that has many properties outside of their resident state, a day-count of time spent at each property is usually maintained.  In the event that the owner’s time spent at a particular property is approaching the statutory residency threshold for that particular state, the family office would notify the tax department in order to plan with that family member accordingly to avoid double state taxation.  The enhanced benefit here is that this notification is done in real time and noted well before the threshold is reached.

2. As the family office maintains all of the family’s various financial, bank and investment accounts, the tax department would immediately be notified upon learning of a new account/investment that was opened overseas and will have ample time to determine the appropriate foreign disclosure reporting requirements for the family’s tax return.

3. As the family office manages/maintains family-owned businesses, there is an opportunity for the tax department to routinely review the books and records of that business in order to determine if there is a tax nexus in a particular state (whether it be for income tax or sales tax purposes), which may require an additional state tax filing.

4. As the family office maintains a family’s charitable activities, there is always coordination and planning with the tax department in order to get the maximum benefit on the family’s tax return. A good example is when the tax department has determined that there is a large upswing in taxable income in any given year. Both the tax department and family office would coordinate with the family in frontloading their Donor Advised Fund (a charitable giving vehicle administered by a public charity created to manage charitable donations).

5.  Although a multi-family office works with outside investment advisors and does not give direct investment advice, there is still tracking of the investment activity for financial reporting purposes. The family office would signal the family and the tax department in the event of a large increase or decrease in income to make sure that they are aware of it. 

Conclusion

While the above discussion can serve as a general guideline and while the benefits and advantages of a multi-family office are clear, please note that there is never a one-size-fits-all approach when a family is considering opening a family office.  There is a lot of room for flexibility for shaping the family office in a way which would best suit the family’s long-term goals. 

About Pamela A. Mosiello