Protecting, sustaining and expanding the legacy of family businesses is a shared priority for many business families. This goal becomes more urgent during periods of economic stress when family property faces greater risk.
An important tool to achieve this aim is the protection of family assets through a family office, commonly known as a family office. It is the organization that manages family assets jointly and professionally according to the family’s purpose, needs and interests.
In the early stages the family office often sits at the heart of the family business and does not operate as a separate platform. As the business grows and generates income, an independent family office is advisable when more generations become involved with interests beyond the core family enterprise or when succession is on the horizon.
In practice the advantages of a family office are numerous. They include achieving cost synergies and centralizing services, reducing risk through diversified investments, accessing broader and better investment opportunities, and aligning the interests of various family members. A family office can also improve cost effectiveness and, in many cases, support family members through governance and legacy planning.
Creating or upgrading a family office begins with clarity on the family’s purpose and vision, and a careful assessment of needs and areas of interest. Beyond investor and risk profiles the family office is designed to operate across several key areas to ensure smooth functioning: operations, staffing, technology, advisors, and governance from both management and tax perspectives.
From a legal and financial standpoint the structure of the family office shapes the taxation of dividends and capital gains for both individual partners and the office itself. Tax considerations include wealth taxes and inheritance and gift taxes, which in some regions can be significant. For example, in parts of the Valencian Community wealth tax has been notably impactful, with recent tax changes affecting 2023 and beyond in relation to family business structures [Source: PwC analysis].