Protecting and Growing Your Wealth Through the Family Office

The phrase “family office” is relatively simple yet non-descript. The term has become common parlance for wealthy families and their advisors in recent years as American wealth continues to grow.

Simply put, a family office provides a variety of wealth planning and asset management services to affluent families, such as oversight of investment advisory services, charitable, income tax and estate planning services, risk mitigation, fiduciary services, “next-gen” education, and much more. Family office services are often more customized and flexible than standard retail investment services. The family office often coordinates with various advisors, such as attorneys, accountants, and professional money managers.

Two primary types of family offices exist. The first is the multi-family office. These are typically a division or a spectrum of services provided by retail investment and wealth firms to multiple affluent families. However, stand-alone companies specialize in providing multi-family office services as well.

The second type is the single-family office. Here, one affluent family’s wealth is managed in one centralized office. Often there are one or more family members and unrelated employees overseeing the management of family assets and associated wealth planning endeavors.
Under the right circumstances, the single-family office may provide a significant tax planning opportunity for wealthy families.

Under the Tax Cuts and Jobs Act of 2017 (the “Trump” tax bill), significant changes eliminated the ability to deduct miscellaneous itemized expenses on individual income tax returns through the year 2025. This includes no deduction for investment advisory fees.

Although the deduction of investment advisory fees has been eliminated for individuals, the general deduction of ordinary trade or business expenses under I.R.C. § 162 was not affected. To deduct expenses under § 162, the taxpayer must conduct a “trade or business.” Like many aspects of the tax law, there is not a clear definition of what constitutes a trade or business; an analysis is conducted based on pertinent facts.

In Lender Management, LLC, v. Comm’r, the Tax Court conducted such an analysis in the context of Lender Management, LLC, a family office entity for the Lender family—of the popular Lender Bagels fame. Here the Tax Court found that Lender Management was engaged in the trade or business of asset and investment management. Importantly, the entity had employees and received compensation for the services it provided. A single-family office could be the solution to the loss of being able to deduct your investment advisory fees.

Please contact us to see if one could be feasible for your situation.