{"id":15507,"date":"2017-11-17T01:58:24","date_gmt":"2017-11-17T06:58:24","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=15507"},"modified":"2020-05-26T09:46:16","modified_gmt":"2020-05-26T13:46:16","slug":"plan-family-office","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/plan-family-office\/","title":{"rendered":"How to Plan a Family Office"},"content":{"rendered":"

Mark from New York asks: “Over the past year or so, I have had many colleagues of mine encouraging me to open a family office. I am a retired physician (current business owner) and most of the details as to how to open a family office are out of my scope of expertise. How do I plan a large family office and what may be some issues involved? What is the best strategy for how to plan a family office?”<\/i><\/span><\/strong><\/p>\n

Joel Nagel: Mark, thank you for the question. Family offices are most certainly being talked about more than ever in the world of endless investment vehicles. The benefits to structuring a family office will surely have a major impact on your finances.<\/p>\n

Family offices and multi-family offices are the fastest-growing investment vehicle for high net worth families (those managing over $100 million in assets). It\u2019s difficult to estimate how many family offices there are in the world, but experts believe there are at least 3,000 single-family offices and at least half of those were set up in the last 15 years.<\/p>\n

Building a tax efficient family office requires consideration of U.S. tax issues, transfer pricing, access to trading platforms, ordinary income vs. capital gains on profit sharing, and licensing necessary in multiple jurisdictions.<\/p>\n

Some very large family offices have trading desks in Panama and Singapore. That gets you tax deferral, but it often requires that the assets remain offshore. Also, this provides no tax savings for the principals. Even if they move offshore, the only benefit is the $100,000 Foreign Earned Income Exclusion<\/a> on ordinary income from salaries earned abroad.<\/p>\n

The issues offshore are obvious. Licensing, a need for U.S. banking, time zone differences, and access to quality English-speaking labor. For this reason, the majority of offshore family offices are based in Panama. This country won\u2019t tax foreign source income, and quality labor and banking are available.<\/p>\n

Since 2015, the most popular jurisdiction for large family offices has been the U.S. territory of Puerto Rico. From a regulatory perspective, your U.S. licenses are valid (assuming you aren\u2019t offering services to locals, of course), banking can remain in the United States, and Puerto Rico has an amazing tax deal available to family offices, managers, and family members.<\/p>\n

First, let\u2019s review the license. Puerto Rico is working hard to encourage hedge funds, family offices, and international banks to set up in the territory. Their International Financial Entities License has specific sections authorizing family offices. This license can also be used by banks and others, but the largest number are issued to family offices.<\/p>\n

When used by a family office that\u2019s not offering service to the general public, compliance costs and regulatory burdens are reduced. The services most commonly provided in the license are:<\/p>\n