The term “family office” conjures up images of the rich and famous, families like the Rockefellers, Pitcairns and Carnegies who needed a full-time staff of high-paid professionals to look after the needs of family members ranging from sophisticated wealth management to household services.
Today, the term is used to describe one of a number of different off-shoots of that concept. It is relevant to an increasing number of individuals who are shifting at least some of their focus from creating wealth to preserving it either due to the sale of a business or the realization that it is time to plan better for the future.
Simply put, a family office is the structure used to manage the business of a family. It need not be an actual office nor need it consist of full-time help. Think of it as a concept, as a kind of virtual office that organizes you for an intended purpose such as:
- Structuring your affairs for retirement or death
- Helping a spouse or children to be more financially responsible with whatever assets you will be leaving them with
- Diversifying your wealth, for example, where it is currently concentrated in an operating business or other asset categories
- Minimizing taxes paid during your lifetime and on death
- Giving to charities in a purposeful, organized and tax-efficient manner
This virtual office should be “established” by a trusted advisor. As is the case with family businesses, often the stumbling block to creating the necessary structure is the reluctance to involve family members in the process. The result invariably is bits and pieces of structure that the wider family often knows little about, and understands even less.
Studies show that the most important single issue that undermines successful transfers of wealth is the breakdown of trust and communications within the family unit. This leads to a failure in preparing heirs for their responsibilities. These two elements combine to cause 85% of the failures of wealth transition plans.
A mere 3% of wealth transition plan failures are due to professional errors in accounting, legal, or financial advisory planning. These professionals are generally very good at what they are trained to accomplish. But many families paying for their advice develop a false sense of preparedness. While tax, legal and financial planning is essential, it is not the complete answer to achieving success in estate transitions. Make sure that you have the well-rounded advice that you and your family require.
Ron Prehogan is a Partner at BrazeauSeller.LLP and President of Equitas Consultants Inc., a consulting business that provides business and wealth transition planning and implementation services for businesses and families using a unique combination of facilitation and transactions expertise. Ron can be reached at rprehogan@equitasconsultants.com or (613) 569-7001. For more information about Equitas, visit www.equitasconsultants.com.
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