How to setup a Family Office

Over the next 20 years, $84 Trillion dollars in assets is estimated to change hands according to consulting firm Cerulli Associates. This is being called the ‘Great Wealth Transfer’. With a large shift in wealth comes new opportunities and challenges for families. How will they manage their money? Who will manage it? Do they need a team? These are common questions that will come up over the course of this transition. 

Establishing a Family Office can be a great way to manage the personal and financial affairs for your family. The concept of a Family Office is not new. As long as there have been multiple generations running companies together, there have been family offices. But it was the Rockfeller family that added more sophistication to what we now refer to as a Family Office. But what exactly does that look like? 

A family office is a private organization that manages the financial and personal affairs of a wealthy family. Generally, families with $50+ million in investable assets with its primary purpose being to handle the day-to-day administration and management of the family’s wealth, investments, tax planning, estate planning, philanthropy, and other financial and non-financial services. Family offices are tailored to meet the unique needs of the family they serve and can vary widely in their structure and services.

Setting up a family office is a significant decision that depends on your family's financial situation, complexity of needs, and long-term goals. Here are some key considerations to help with the set up of a family office:

1. Significant Wealth Accumulation

Net Worth Threshold: Typically, families consider setting up a family office when their net worth reaches around $100 million or more. However, some families may find it beneficial to establish one with a lower threshold if their financial affairs are complex.

2. Define the Purpose and Objectives

Determine the goals of the family office. This could include wealth preservation, investment management, tax planning, estate planning, philanthropic activities, or lifestyle management. Clarify the family’s values, vision, and long-term goals to ensure that the office's strategies align with these principles.

3. Legal and Regulatory Considerations

Set up the appropriate legal entity for the family office, often a limited liability company (LLC) or a corporation. Understand and comply with the regulations and tax requirements that apply to family offices in your jurisdiction.

Consult legal and tax professionals to ensure that all aspects of compliance, reporting, and structuring are properly managed. This is also beneficial for the protection of assets within the family and those on the outside. 

4. Develop a Governance Framework

Establish a governance structure to define roles, responsibilities, and decision-making processes. Creating a family council or board to oversee the family office’s operations will ensure alignment with the family’s values and objectives.

Develop a family constitution or charter that outlines the guiding principles, mission, and succession plan.

5. Financial and Investment Planning

Creating an investment policy statement that outlines the family’s risk tolerance, asset allocation, liquidity needs, and return expectations will allow those managing the assets to make better decisions.

Set up an investment committee to oversee the management of the family’s wealth and monitor performance. Consider using accounting and investment management software to track finances and investments effectively. Having reports at the ready will provide those on the committee with the information necessary to proceed or pivot should the need arise.

6. Build the Right Team

Hire experienced professionals to handle wealth management, financial planning, tax strategies, legal matters, and other areas of expertise. Depending on your needs, the team may include investment advisors, tax specialists, legal counsel, accountants, and administrative staff. Decide whether certain roles should be in-house or outsourced to specialized firms. Some Family Office structures could include a CEO, CFO, COO, etc. 

7. Philanthropy and Legacy Planning

If philanthropy is a priority, set up a structured giving strategy that aligns with the family’s values and objectives. Consider creating a private foundation or donor-advised fund to manage charitable donations effectively. 

When planning for generational wealth transfer and ensuring that the family's legacy is preserved, a family office can play a key role in coordinating estate planning, trust structures, and succession planning. If you're preparing to pass down wealth to the next generation, a family office can educate family members about financial matters and involve them in the decision-making process.

Setting up a family office requires careful planning and a clear understanding of the family's unique needs and goals. Family offices can also vary greatly in size, structure, and service offerings, depending on the family's specific needs and objectives. They are designed to provide a holistic approach to managing both financial and non-financial aspects of a family's wealth.