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Family Office & Trusts

What Are Family Office & Trusts

Families are considering the advantages of creating a family office more and more as worries about wealth preservation and succession planning inside family enterprises continue to grow.

To enhance their family’s net worth and create the consistency necessary to maintain it over generations, families employ teams of specialists who work only for their family.

A family office is a financial advisory firm that advises wealthy families on how to manage their wealth. They focus on preserving assets accumulated over generations.

Family offices can offer a variety of services, such as:

  • Tax planning
  • The investment strategy and management
  • Family education & multi-generational planning
  • Philanthropic planning
  • Estate planning
  • Lifestyle management services

Two family offices exist:

  1. Single-family office: Single Family Offices (SFOs) are responsible for managing a single family’s wealth.
  2. Multi-family office: Multi-Family Offices (MFOs) combine the wealth of several families. Multi-family offices are typically run by outside parties or established as SFOs that offer services to other families as part of their normal business operations.

“Family trust” refers to a legal structure whereby certain property (or “trust corpus”) is controlled by trustees (who can be individuals or companies) for the benefit of beneficiaries. The trust can be established at birth after someone has died, or during life. Beneficiaries can be children, parents, grandparents, siblings, charities, insurance companies, etc.

Family trusts can fund particular family requirements, such as health, education, marriage, or travel. It serves as a mechanism for holding assets solely for that reason, generating, preserving, administering, and securing them for that defined purpose.

Need for a family office manager

Reasons, why a family office manager is required, are:

  • The family office manager is a trusted advisor to the family who can help you navigate the financial and legal aspects of your family’s business. The manager can also be an advocate for you, guiding how best to manage your finances and protect your assets in the event of a personal or business emergency.
  • Family offices have access to client information that is unavailable to other parties. The privacy of this information is essential to maintaining trust, confidence and reputation among clients and advisors alike.
  • Family offices manage assets for high-net-worth individuals and families with substantial wealth in many different business areas. Family offices also provide valuable advice on how best to invest those assets to grow in value over time while minimizing risk exposure to market volatility or other factors beyond their control.
  • A defined family purpose can be established with the family office’s assistance, which will enable the family to leave a lasting legacy for future generations.

Benefits and Ease

Benefits of having a family office are:

  • A team of specialists working in the family office are responsible for looking after the wealth of the family. The team makes decisions about all aspects of financial planning, including asset allocation and investment selection. It also recommends charitable giving opportunities and undertakes philanthropic planning tailored to a family’s needs and interests.
  • Family offices are typically more cost-effective than a personal banker or wealth manager because they do not require a large overhead expense or staff. A family office will typically place more of an emphasis on asset management and acquisition than on individual financial planning.
  • Since everything flows through one channel, family offices combine operational risk and management. This aids family office owners in reaching their or the family’s investing goals and enables them to make more sensible selections.

Regulations around Family Office & Trusts in India

  • There are several possibilities for establishing family offices in India, including private companies, limited liability partnerships, and trusts. The trust structure is typically favored because of the flexibility it provides.
  • Any person capable of entering into a legal contract, meaning they are at least 18 years old, of sound mind, and not barred by the law, may create a trust.
  • For the benefit of a third party (called beneficiaries), assets are transferred by one party (referred to as the settlor) and retained by another person (referred to as the trustee).
  • The taxability of income derived from a private family trust under the income tax system is based on the structure chosen when the family trust was established.

The trustee manages the trust’s affairs, and the trustee only distributes income or corpus to the beneficiaries per the conditions stated in the Trust Deed or the direction of the Settlor or Protector.