In the last decade, family offices have become increasing popular vehicles among high-net-worth individuals and families looking for more formalized investment management, tax planning, estate planning, and philanthropic engagement. The following frequently asked questions are meant to provide more clarity on establishing a family office and the vast benefits a family office can provide.

1. WHAT IS A FAMILY OFFICE?

A family office is a legal entity formed to assist a wealthy family, protect and manage its assets, invest its capital, and maintain the lifestyle of family members. Once the office is formed, the family hires a staff of experts to manage the family’s widespread portfolio under one roof. While family offices come in different shapes and sizes, the business of the family is the business of the office.

2. DO I NEED A FAMILY OFFICE?

Family offices provide a host of benefits to wealthy families looking to engage in wealth preservation, family philanthropy, household management, and multi-generational estate and tax planning. Establishing a family office can benefit high-net-worth families who have maintained wealth for a long period of time as well as families who have recently experienced, or are about to experience, a large liquidity event.

In either case, family offices provide high-net-worth families an advantage in wealth and risk management, legacy planning, and private and customized asset allocation. Additionally, families who pay exorbitant advising fees, have widespread portfolios, own highly specialized assets, and spend large amounts of time managing advisors can benefit from the dedicated service a family office provides.

3. DOES MY FAMILY NEED A MINIMUM LEVEL OF WEALTH?

While a balance sheet measure provides insight into the ideal level of wealth and complexity for establishing a family office, sustainable income from investments or a large liquid portfolio is key in effectively operating a family office. Family offices require capital to hire directors and staff—having the liquidity to pay these costs is essential. For this reason, families with a net worth of approximately $300 million or more are good candidates.

4. WHAT IS THE DIFFERENCE BETWEEN A SINGLE-FAMILY OR MULTI-FAMILY OFFICE?

Single-family offices are dedicated to serving one family’s (may be multi-generational) financial, investment, philanthropic, and estate and tax planning needs. Because of this focus, families that establish a single-family office can expect a team of professionals who are exclusively dedicated to the family’s needs. This structure prioritizes the goals, values, and risk tolerance of a single individual or family group and is typically more capable of quickly adjusting strategy.

Multi-family offices meet the needs of unrelated family groups by utilizing a large team of experts in various areas of wealth management. With this larger client base comes the combined assets and resources of wealth managers, financial advisers, investment managers, private equity groups, and financial institutions. As a result of a larger client base, multi-family offices are more affordable and provide a diverse array of investment portfolios.

When deciding which type of office to choose, families should consider their aggregate net worth, the complexity of financial needs, and the desired level of personalized attention. Single and multi-family offices offer different benefits and solutions, but both structures are aimed at efficient wealth preservation, family philanthropy, household management, and estate and tax planning.

5. WHO DO I HIRE TO LEAD MY FAMILY OFFICE?

Senior members of a family office play a crucial role in the office’s success. These positions are often filled by individuals who have a deep understanding of a family’s finances, business opportunities, estate and tax planning vehicles, and investment goals.

Senior members of a family office are also closely involved with members of the family they are serving, and in this role, frequently attend family events, negotiate on behalf of the family, and provide trusted advice. These individuals can serve different roles for the family office. For instance, one senior member may be focused on the day-to-day business of the family, while another may be a specialist in an area like taxes, real estate, investment, or property management.

Above all, families should choose professionals who understand the family’s overall vision and complement the family’s dynamic.

6. WHERE SHOULD I LOCATE MY FAMILY OFFICE?

Choosing where to open a family office is not a one-size-fits-all decision. While there is certainly convenience in having a family office near the family’s principal place of residence, other factors might discourage this approach.

First, given where the family likes to work, study, and travel, lifestyle factors might dictate that a family office be located in a convenient location for family members. Second, legal, governance, and tax issues might mean that a family office would better serve the family if it were in a specific location. Third, a family may want to consider how location might impact the ease of attracting sophisticated hires.

Finally, depending on the types of assets held by the family, it might be advantageous, or even required, to locate a family office in a particular state.

7. HOW DOES A FAMILY OFFICE HELP PLAN FOR FUTURE GENERATIONS?

For families with multi generations and considerable wealth, family offices are crucial in effective estate and tax planning. Family offices coordinate the execution of estate and tax planning documents (e.g., wills, trusts, and powers of attorney). They also maintain centralized records regarding all family trusts and entities, making the transfer of wealth between generations seamless. Without this level of coordination and centralization, the inevitable transition from one generation to the next can be fraught with financial and legal landmines.

8. HOW DOES A FAMILY OFFICE ENGAGE FUTURE GENERATIONS?

Family offices play an important role in educating future generations about the specifics of a family’s wealth and the family’s business ventures. They also provide an opportunity for younger generations to learn the fundamentals of investing and handling assets in a managed environment. With the help of a family office’s array of experts, more senior generations can be assured that younger generations are being prepared for a financially sound future.

9. HOW DOES A FAMILY OFFICE FACILITATE PHILANTHROPY?

Family offices play an important role in ensuring that families can engage in large-scale, impactful philanthropy. Family offices help to engage professionals to work with the family office staff to analyze the tax benefits. If a family has a private family foundation, family office staff often serve as a central point-of-contact to maintain compliance with the various rules surrounding family foundations to maintain tax-exempt status.

10. HOW DOES A FAMILY OFFICE HELP WITH HOUSEHOLD AND REAL ESTATE MANAGEMENT?

Family offices are equipped to solve household administration issues such as the upkeep of vacation homes and the hiring and maintenance of household staff. Additionally, family offices streamline the buying, selling, leasing, and valuing of family-held properties. Having a family office can greatly simplify property management for families with a large portfolio of real property.

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