As family wealth becomes more complex, many high-net-worth families reach a point where they need a more formal approach to coordinating their investments, trusts, businesses, philanthropy, taxes, and legacy and succession planning. A family office can help bring those pieces under one coordinated umbrella.
The right family office model can give families clearer oversight, stronger governance, and more consistent support across generations. Before deciding which approach makes sense, it’s important to understand the different family office structures available and how each one may fit your family’s needs.
How to structure a family office based on your needs
Before deciding the structure of your family office, the stakeholders and your advisors should ask some key questions, including:
- What is your family's net worth and complexity?
- How many households and individuals will be served by the family office?
- How many entities, trusts, and investments are involved?
- Does the family office need to support your family business?
- Are family members actively participating?
- What level of control do you want?
- What services will your family need?
Beyond these questions, your preferences for cost, customization, governance, privacy, and succession all factor into your structuring decisions.
Common family office models
Families have several types of family office models to consider depending on their needs and goals. Commonly seen models include:
- Outsourced or Virtual Family Office (VFO): Under this setup, a family outsources the work to a third-party provider or a team of advisors, but families will still need to coordinate among the professionals. This structure can be more cost effective than a multi-family or single-family office.
- Multi-Family Office (MFO): This type of family office has multiple family relationships sharing family office staff. The family office works across multiple families, offering them integrated, institutional-level resources at a lower cost than having a dedicated single-family office. A downside to this setup is that it offers less customization and families must share resources. It works best for families that need comprehensive support but don’t have the internal infrastructure.
- Single-Family Office (SFO): In this type of family office, you have dedicated staff working for one family, giving you more confidentiality, customization, and control. This is an expensive way to run your family office and staffing challenges are common. It’s ideal for ultra-high-net-worth and complex families.
- Embedded Family Office: With an embedded family office, the family office operates within the existing family business instead of as a separate legal entity. This structure can work well when the business is still central to the family’s wealth, but it may become harder to manage as responsibilities and family net worth expand outside the business.
Family office legal structure considerations
Once you’ve decided on the operational model that best fits your family’s needs, the next step is determining the legal structure that will support it.
When choosing a legal structure, many factors come into play, including the operational model, tax considerations, location/jurisdiction, and the size of the assets being managed. The type of legal structure can assist with liability protection, governance and management authority, tax efficiency, and succession planning.
To operate smoothly, many offices determine an organization structure within the legal structure as well. Many have specialized positions such as Chief Executive Officer or Chief Financial Officer. Documenting this structure ensures that each person understands the roles and responsibilities within the family office. Some families choose to have committees within the structure, like a family assembly to bring multiple generations together or a family council to guide leadership decisions. With these organization structures, family offices can establish internal controls to mitigate risk and limit the control of each position.
Core functions of a family office
Family office functions can vary, but they typically offer the following core functions:
- Accounting and tax planning/administration: Family offices often handle bookkeeping, consolidated financial reporting, tax filings, and coordination with advisors and other entities. They monitor cash flow, pay bills, and keep financial operations on track.
- Investment oversight: Family offices help oversee the family’s investment portfolio by monitoring performance, managing risk, selecting outside managers, planning for liquidity needs, and coordinating with investment advisors.
- Governance and family leadership: Family offices can help organize family meetings, guide decision-making, and educate younger generations so family members understand their roles and how decisions are made. A family office can also assist with exit planning, leadership transitions, and tax strategies when a family is ready to sell or transfer the business.
- Philanthropy, estate, and legacy planning: After accumulating wealth, families need advisory support to plan how assets will transfer, manage estate tax exposure, structure charitable giving, and define the family’s long-term legacy. This can include coordinating with estate planning attorneys, running private foundations, setting charitable giving strategies, creating family mission statements, and educating younger generations on stewardship.
- Lifestyle management: Many family offices also handle the family’s personal affairs and needs, including organizing travel, managing household staff, making major purchases, and overseeing other day-to-day administrative tasks.
Common family office structuring mistakes
Even with the right intentions, families can run into challenges if their family office structure is not thoughtfully planned or revisited over time. A few common mistakes include:
- Launching a family office too early, before your family fully understands your needs, or waiting too long, when things have become complex and inefficient.
- Focusing only on investments instead of considering more services a family office may need to provide, like tax, accounting, education, and lifestyle management.
- Overlooking governance and succession planning, which can make it harder for family members to understand who makes decisions, who owns what responsibilities, and how the office operates.
- Relying too much on informal roles and decision-making as the family office grows. What works when wealth is simpler and decisions sit with one founder can become confusing as assets, entities, investments, and family branches expand.
- Failing to reevaluate the structure as wealth grows, new generations become involved, or the family’s investment, philanthropic, and administrative needs become more complex.
Setting up your family office for long-term success
Remember that there is no one-size-fits-all family office structure. The best model may change over time, and it should balance factors like cost, control, governance, and complexity.
It’s essential to work with advisors to review the structure periodically to make sure it continues to support family goals and that your legal, tax, and wealth management plans are all aligned.
Whether you're exploring family office structures for the first time or reevaluating your current approach, experienced CPAs and wealth management advisors can help you determine the most effective legal, operational, and governance framework for your family's needs.