Amy Horn


Family Office Operating Agreement

The Lender and Hellmann cases provide greater clarity to family offices interested in these distinctions. As already said, there are two ways to remove family office deductions: (1) the payment of administrative fees to the Family Office by family clients and (2) the payment of expenses by the Family Office if it is not an activity or business. The second problem is addressed by structuring the Family Office as a C-Corporation. To avoid the first problem, the Family Office can be compensated by Family Clients in the form of profit sharing in Family Investment Vehicles. These interests must be carefully developed in order to allocate sufficient resources to the annual operation of the Family Office, while avoiding the allocation of excess revenue to the Family Office. Interest on profits can be structured in different ways, for example as a percentage of assets under management or by using a percentage margin on family office costs (similar to a “Cost-Plus” agreement), limited in both cases to the net profit of the investment vehicle. This article only briefly discusses the most common structures and other Family Office arrangements are certainly possible. For example, multi-family offices or offices created to serve multiple families (and often unrelated) are not uncommon. A family can also integrate its family office activities into a private trust company.

24 However, those two agreements do not fall within the scope of this article. 9 For a full article on the demanding conceptions of family investment partnerships, see Boyer and Kess, “Family Investment Partnerships: Structuring and Tax Considerations,” 22 Journal of Taxation and Regulation of Financial Institutions 23 (September-October 2008). Does it make sense for the youth generation to participate in the Family Office? As with any good business follow-up plan, the answer is, “That`s what matters.” From the owner`s perspective, it is generally more advantageous for the older generation to own the Family Office for as long as possible, given the company`s large capital burden. However, if the long-term goal of the Family Office is to serve future generations, an estate settlement must be designed in such a way that the function is passed on to the family. . . .

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