Where there is a high net worth family spread over many generations and each family member has their own businesses as well as numerous staff to look after both their personal and business affairs, it is not surprising that many families are turning to family offices to provide a confidential point of coordination for family affairs, succession planning, and control challenges.
Wealth Preservation
Wealth preservation is a primary objective of any family office. Families will be seeking to maintain their current net worth by taking a rounded approach to risk management, asset protection, and cross jurisdictional structuring.
Having successfully established themselves in the business world and amassed a large amount of wealth along the way, they will undoubtedly wish to preserve this level of wealth and determine a way to sustain their family legacy and prevent the erosion that might begin to eat away at their fortune.
High net worth families may suffer many challenges when seeking to preserve their wealth due to the constantly evolving network of international regulations and tax laws, they face a vast, complex, and sometimes difficult environment. It is unlikely that they will find sufficient time to read up on changes which may affect how to achieve wealth preservation. A coordinated and organised central advisory role is pivotal and this is where the family office comes into play.
A family office can provide relevant asset protection using sensible (and compliant) structuring of legal entities and by ensuring that international changes and markets continue to be monitored so that those structures remain effective and beneficial. Good planning can successfully reduce any possibility of future risks by protecting against creditors, divorce proceedings, and in some cases even the family members themselves. A good family office will develop an in-depth understanding of the family dynamics and relationships and this on-going communication will ensure that wealth is sustained not only in the short term but also for the family’s future generations.
Family Governance
Every family is unique and as such no two family offices will be structured the same. This is due to differences in families’ priorities. Each family will have different philosophies, values, needs, and circumstances and often a reflection of this is required within the structure to consider estate planning, family leadership, and fairness. The goal of family governance is to establish a sustainable structure for business and wealth that will define how the wealth is managed and maintained in the long term.
This may be a complex issue for large modern families. The more family members become involved in the family businesses the more likely it is that there will be a difference in opinion and therefore a lack of consensus. Each member of the family will have their own separate needs and values for governance of family wealth. Where there are young families, it is likely their priorities and needs will differ from the older generations.
This is usually achieved by family offices working closely with the family to develop a constitution which addresses the basic principles of the family’s policies and views. This should be carefully integrated into the family office structure; doing so properly will minimise the disputes that wealth can otherwise bring to a family.
Mentoring
One of the biggest issues is dealing with the next generation. A primary focus of many family offices is ensuring that the children of the family have the best possible education and guidance throughout this time. It is essential that families don’t bury their head in the sand when it comes to the long-term plans of family businesses, wealth, and wellbeing. A great family office service will help the next generation slowly assume greater responsibility for wealth planning and maintenance, supported by a suitable network of highly qualified advisors. This is presuming that all members wish to play their part in the family business; if this is not the case this should be addressed too and roles outside of the family business considered to make the best use of the next generation’s talents.
Luxury Asset Administration
Where there is access to luxury assets, a reputable family office will be able to offer assistance and experience in the establishment, purchase, registering, and ownership of luxury assets such as yachts, aircraft, helicopters, antiques, artwork, jewellery, cars, and other personal property.
Why? Because it can be extremely difficult to manage luxury assets. The daily administration consists of contracts, agreements, financing, tax and VAT issues, staffing, and a dozen other variables – these require impeccable organisation and careful coordination. A family office will merge any asset owning entities into an existing family office structure and provide the pivotal point of contact for day-to-day issues, leaving the family to enjoy and make the most out of owning those assets.
Philanthropy and Other Services
Modern families are now seeking more than just administrative and advisory roles from their family offices. One of these additional areas is philanthropy. Many wealthy individuals quite rightly turn their attention towards how they can use their wealth to effectively change and develop areas close to their hearts.
Charity can form part of a family’s legacy and family offices are now often required to provide advice on the most appropriate and beneficial ways to structure and implement a family charitable foundation, to maximise the impact of their giving.
Additionally, with the growth of family offices there has been a need and requirement to expand to the provision of additional services over and above the general asset holding entities, administration, and accountancy services. Family offices are now providing additional roles to support the family, including concierge services, personal tax and estate planning, banking, legal advice, and management services for family homes.
Key location for a family office
A private family office can cost anything upwards of £500k per annum and therefore normally only makes financial sense for clients with assets over £100m, given the costs involved in establishing an in-house team, to establish a family office. Multi-family offices where overheads are shared across several client families provide a cost-effective offering for wealthy families.
Choosing a location for a family office is important. Key location criteria should include:
- The availability of high-quality professional advisers and key sectors of law, accounting, and fiduciary services
- The legal infrastructure
- The personal and corporate tax regime
- The political environment
- Strong IT and technical infrastructure
- Quality of life if they are planning to reside the jurisdiction
The Isle of Man a key location – what are the benefits?
The Island is a great place to relocate your family benefiting from an incredibly safe environment, excellent private and state schools, beautiful scenery, and a fantastic standard of living. The Island’s parliament, Tynwald, has been in operation since 979 AD and as a British Crown Dependency has the autonomy to set its own laws and taxes.
The Island has a strong and vibrant economy, a stable legal infrastructure, the longest serving unbroken parliament in the world and an attractive tax regime, and as such the Isle of Man is an increasingly popular jurisdiction for family offices to locate.
The Isle of Man has advantages for its residents with low-income taxes including a maximum income tax liability (a ‘tax cap’) of £200K (jointly assessed couple is £400K maximum) for High-Net-Worth Individuals. Additionally, there are no inheritance, capital gains or wealth taxes and most trading companies pay 0% corporate tax. Tynwald has a constitutional requirement to budget for a surplus annually which has served the Isle of Man well during the past few years of challenging times.
The combination of the Island’s political and legal stability, quality of life, attractive tax regime, availability of professional services and technological infrastructure combine to make the Isle of Man a compelling jurisdiction to base for family offices.