You may be asking yourself, “What could I possibly have in common with the greatest talk show host, basketball player and investor of our time?” Well, from a financial point of view, many of the issues you face are similar to theirs – only theirs involve millions (or billions) more dollars.
Most high-net-worth individuals can relate to questions like: How should I structure my business and personal affairs to minimize taxes? What types of assets should I be invested in to reach my financial goals? Will my estate be managed and distributed according to my wishes?
While it’s no surprise that these celebrities all use a Family Office Services provider to oversee these and many other aspects of their financial lives, it might surprise you to learn that you don’t have to be a celebrity or ultra-wealthy person to do the same.
Family Offices have been used by ultra-high-net-worth families and individuals for many years, and in the last few decades, this form of comprehensive wealth management has also been made available to families of more modest means. In some cases, as with clients of T.E. Wealth, families with even a few million dollars in assets (including the value of their homes) can benefit from the savings of time, money and stress that a Family Office can provide.
Typically, a family’s financial affairs are handled by the following different professionals:
- A Chartered Professional Accountant (CPA) to prepare annual tax returns and provide occasional tax planning tips
- A lawyer or notary to draft wills, powers of attorney and trust agreements
- An investment advisor to oversee the family’s investment portfolio
- An insurance agent to advise on life and health insurance
A designated family member is usually responsible for overseeing communication between these professionals, and then implementing their recommendations to preserve, grow and ultimately transfer the family’s assets to the next generation. This role can be further complicated if the family’s attention is divided by the ongoing management of a family business, health or personal issues, or a lack of knowledge or interest in wealth management.
A Family Office can act as a single point of contact to oversee all of these services, and ensure that the best interests of you and your loved ones are always the first priority. They are, essentially, the Chief Financial Officer for you and your family. But their role goes much deeper than you may imagine.
For most high-net-worth families, asset protection across the generations is a primary concern. One of the ways a Family Office can help you achieve this is through efficient tax planning, with a view to minimizing taxes to your successors. They can also structure your affairs in a way that simplifies administration, which will reduce overall costs, avert legal challenges and speed up the settlement process – sometimes by years.
Some of the financial services they can provide may include:
- Financial planning
- Investment management
- Tax advisory
- Estate and trust services
- Consolidated asset and liability reporting
- Charitable giving advice
- Multi-generational financial education
By having one point of contact oversee all of these services for you, you can expect:
- To save time – spent on meeting and coordinating with multiple professionals.
- To save money – through a tailored estate plan that reduces personal taxes and probate fees. Using one lawyer to plan and draft all of the wills and powers of attorney for a family offers additional savings.
- Peace of mind – knowing that your professionally prepared financial plan will protect your family and assets. Your planner can also act as a buffer between family members in cases of disputes.
So how can all of this expertise benefit you and your family? Here are three examples.
1. Estate planning for a retired couple
- Mary and Giovanni are in their mid-seventies and have been retired for several years
- Giovanni has had several health issues during the past two years
- They have three grown children, two of which are married and have minor children of their own
- Their third child has had drug and alcohol issues for many years, and has relied on the family for emotional and financial support most of her adult life
- Mary and Giovanni drafted a will many years ago, before their grandchildren were born, and taking the extent of their third adult child’s personal issues into consideration.
- They want to treat all of their children equally.
- They are concerned about their third child’s ability to manage her affairs when they are gone.
- They want to contribute to their grandchildren’s post-secondary education to give them a good start.
- They want to pass on their assets to their children while minimizing personal taxes and probate fees.
- Giovanni is concerned about his long-term health and access to timely healthcare advice and treatment.
Family Office solutions
- Assist with drafting new wills and powers of attorney.
- Establish trusts for all family members that are designed to hold their personal assets, reduce probate fees, and for creditor proofing purposes.
- Work with a lawyer to set up a living trust for the third adult child, and arrange to transfer investment assets to fund current and future care costs.
- Establish RESPs or universal life insurance policies to fund the grandchildren’s education.
- Enroll Giovanni in a private health consulting clinic that has referral relationships with major U.S. healthcare centres.
2. Sale of a business to create a family legacy
- Greg and Judy are in their sixties and have sold the family business for millions of dollars; they are considering semi or full retirement.
- One adult child would like to start his own separate business.
- Another adult child wants to continue pursuing a post-secondary education to be either a professor or professional.
- They have three grandchildren under the age of 10.
- Greg and Judy are actively involved in various community organizations.
- Retirement planning/funding concerns.
- How will Greg and Judy, who have worked for many years in the business, keep active during retirement?
- How do they treat their adult children fairly?
- How do they not spoil their grandchildren, and teach them the value of money and hard work?
Family Office solutions
- Create a personal financial plan and cash flow analysis that projects future investment income/lifestyle expenses, to ensure they have adequate savings for retirement; provide updates every 1-2 years.
- Refer Greg and Judy to a personal lifestyle coach, who can assess their interests and find opportunities to help them remain active during retirement.
- Consider establishing a family bank to lend the adult child funds on favourable lending terms to establish the new business.
- Establish individual trusts for each adult child to fund lifestyle and educational expenses.
- Establish RESPs for each grandchild.
- Enroll adult children and grandchildren in a Family Office financial literacy program to learn about personal finances.
- Establish a foundation to fund community initiatives; include adult family members on the board to oversee the foundation; involve grandchildren in researching investments and assessing funding applications.
3. Managing a dual executive family
- Fred and Ming are both senior executives with large publicly traded Canadian companies; both work long hours and are involved in numerous philanthropic initiatives.
- Both receive a significant portion of their annual employment compensation in the form of stock options.
- Fred’s parents are in their eighties and live on the other side of the country; Ming’s parents are also in their eighties and are living in a condo located a few blocks from Fred and Ming’s home.
- Fred and Ming have two children in private school; both children are actively involved in extracurricular activities.
- Neither Fred nor Ming have enough time to manage their personal finances.
- They have each accumulated significant stock and stock options in their respective companies, but think that they should diversify their investment holdings.
- Each set of parents would like to stay in their respective homes as long as possible, but neither Fred nor Ming have the time to assist them.
- Fred and Ming do not have enough time to shuttle their children to their various extracurricular activities, and rely on Ming’s parents and other private school parents to provide daycare and transportation.
Family Office solutions
- Create a family financial plan for Fred and Ming, including investment manager selection and annual tax filing services.
- Arrange to have a portfolio manager review their respective stocks and develop short and long-term diversification strategies.
- Arrange interviews and assist in the selection of in-home service and health care providers for their parents; arrange for monthly billing and follow up with outsourcing firms on any concerns or issues.
- Arrange interviews for hiring a nanny to assist with the children and manage the relationship with the
- Arrange interviews for hiring a nanny to assist with the children and manage the relationship with the nanny’s outsourcing firm, including monthly invoicing and HR matters
If you’re wondering how a Family Office can work for you, it’s worth having a conversation to find out. Because whether you’re a celebrity or not, chances are you could probably benefit from a few solutions that you may not even have known existed.
Jason Kinnear, Manager of Family Office Services at T.E. Wealth, is a Chartered Professional Accountant and Chartered Business Valuator. He previously worked in public accounting with high-net-worth individuals and families, providing tax advisory, business valuation and succession planning services.
This article was published in T.E. Wealth’s Strategies newsletter, December 2017 edition. Read the full edition here.