Wealth transfer, asset management, inheritance issues, estate taxes, and the global economy are major concerns for the Ultra-High Net Worth families (UHNW). Passing wealth to the heirs and the next generation remains a complex area that a team of expert advisors must revise. In these modern times, multi and single family offices provide solutions to cater to the needs of the UHNW.
The number of family offices worldwide has increased significantly over the last decade and this trend is expected to continue. Family offices have become a dominating force in global markets and now, they have the ability to make transactions that have traditionally been reserved for large companies or private equity firms.
Third Generation Family Wealth and Business Failures
One of the most challenging changes a family business or an estate has to undergo is the transition from the second to the third generation. The third generation, accustomed to wealth and privilege is likely to spend the business into bankruptcy. Furthermore, they traditionally also have a very tough time understanding the family business well enough to provide the necessary leadership to grow the business if a proper planning is not done.
To make matters even more complicated, there are usually, other members of the family in the third generation, interested in managing the family business. This would include perhaps members of the family that have grown up in different households and may have different education, values and viewpoints. Lastly, you may have conflicting personalities and enormous differences in both competencies and financial needs.
Planning to Protect Family Wealth
To be able to pass on your wealth to future generations, first you need to ensure it is adequately organized and protected. There are different solutions available under the law to protect family wealth and usually the right solution consists on a combination of legal structures, which include Private Investment Companies, Limited Liability Companies (LLCs), Private Interest Foundations, Asset Protection Trusts, and Private Investment Funds. The right solution for each family will depend on their specific situation considering country(ies) of residency, country(ies) of citizenship, specific business operations, residency and citizenship of beneficiaries, among others. There is no one size fit all solution and each situation must be carefully analyzed by a team of legal, fiscal, and financial advisors that can make sure the proposed structure is compliant with all regulations related to the case.
Through irrevocable trusts, a grantor transfers the ownership and control of assets into a trust managed by a trustee, and cannot modify or terminate it without the consent of the assigned beneficiaries. A revocable trust permits modification by the grantor or settlor. On the other hand, Private Interest Foundations (PIF) possess the characteristics of a company and a trust as it is an entity with legal personality on its own instead of a contract like a trust, and contains Regulations that serve as a document equivalent to the Letter of Wishes of a trust. A VISTA Trust is a trust that exists under the laws of the British Virgin Islands, with the specific purpose of holding shares of BVI Companies, and allows for a third party, different to the trustee, to oversee the management of the underlying assets. Private Investment Funds allow to invest collectively in a portfolio with diversified risk that often benefit the investors through Multi-Family Offices.
For UHNW families, traditional methods do not always work and at some point, they shall consider establishing a Family Office to optimize their Estate Planning and Wealth Management costs. UHNW families have gained traction with family offices, which may be attributable to the rise and accumulation of privately held wealth.
Types of Family Offices
Family offices take several forms but usually fall into one of three distinct categories in a very specific context:
Single-Family Office (SFO)
SFO is dedicated to one family, perhaps with many households, and represents not only the matriarch and patriarch (G-1) but also the second and subsequent generations.
Multi-Family Office (MFO)
MFO is an autonomous entity that handles several families’ wealth; it may be a small business (sometimes expanding from a single-family office) or it may be a division of a large bank or financial services firm. As with an SFO, an MFO may also handle multiple families’ fiduciary, trusts, and estate business and their assets.
Hybrid or Virtual Family Office (VFO)
A VFO outsources many services it offers to the family. The VFO may have few administrative or accounting resources when outsourcing investment, legal, accounting, technology, and other services.
The right time to set up a Family Office
Inheriting millions and investing them smartly is a big responsibility. At OMC Group, we can provide fiduciary, corporate, and financial solutions to our clients to manage their family’s assets.
OMC Group professionals have expertise and extensive knowledge in a broad variety of specialized areas including wealth management, legal entity formation, trust administration, family office facilities, and compliance services. We work hand in hand with legal, tax and financial advisors through our global network of professionals. We can help with the end-to-end process, which could for example range from setting up a trust to administer assets for your next generations to helping you prepare and explore options to legally protect your wealth. The right time to set up a Family Office may be different for each family. The right time to protect your assets and plan for future generations is now!
Disclaimer: The information in this article is for general information purposes only and is not intended to serve as legal or tax advice. Please contact OMC if you have specific legal questions regarding this topic.