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Establishing your own family office to manage your wealth means you are in the same league as the Rockefellers, right? While family offices are an option for only the super affluent, their ranks are growing, and many banks and trust companies are responding with family office services.
The Family Office Exchange, a Chicago-based advisory group, suggests that a family have at least $50 million in assets to make maintaining a family office worth the cost. But, for example, the sale of a valuable private business could suddenly put a family in that ballpark.
Family offices are created to preserve and grow family wealth from generation to generation. The duties of the office can range from money management to handling other financial and legal needs. A family office could be responsible for taxes and accounting, transferring businesses from one family member to another, and developing philanthropic goals and strategies.
However, in many cases, wealthy families are not always able to preserve the financial legacies of their successful progenitors. There are plenty of people who had a wealthy grandparent or great grandparent whose fortune has dissipated over time. Few family estates endure beyond the third or fourth generation - but they could last much longer if well managed.
Maintaining and managing collective wealth of many family members can ultimately generate more money than it could if the family fortune were divided among family members and individually managed. While all of the heirs may be wealthy, they may not be able to afford the expensive services that a family office can provide to everyone in the family. The more members the family office serves, the more costs will be spread out.
Family offices are not new - some date back to the mid-1800s. Many have been notoriously inefficient over the years because paying a staff can be extremely expensive. As a result, many family office services have developed within banks and trust companies as both the family and its wealth grows. Banks sometimes set up family office units to provide separate advisory services. It's important that these services remain independent - families with such complex finances need neutrality and objectivity.
A family office can be structured to meet the specific needs and goals of the family. It could have as few as three to as many as several dozen employees. It could outsource most services or be completely autonomous. Family members usually act as advisors to the office's managers.
The very wealthy need a committed team with a full understanding of the family's needs and goals now and in the future. Finding the right partners in the legal, tax, and financial communities is critical. If all of the partners work together with the family's best interests in mind, the family is better positioned to achieve its wealth transfer and preservation objectives.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.