The family office has become wealthy families’ preferred vehicle to manage,
preserve and protect wealth for future generations. The meaning of a family
office varies wildly depending on the family — a trait that demonstrates
its inherent flexibility to serve family needs. At its most generic, a
family office manages and administers a family’s affairs. That said, almost
all family offices perform wealth management and investment functions on
behalf of the family.
It is not surprising that non-U.S. families typically establish their
family office in the family’s home jurisdiction. However, family offices
are becoming more international as families grow and interact globally. As
such, the trend is to build family offices that operate across borders —
leveraging diverse expertise and investment opportunities. In addition,
jurisdictional diversification can provide protection for families whose
home jurisdiction has an uncertain economic or political climate.
For many non-U.S. families, the United States has become an ideal
jurisdiction for a family office branch or, in some cases, the complete
migration of the family office. These families often have material ongoing
contacts with the United States or desire a framework to develop those
contacts in the future. United States contacts that often lead a global
family to establish a U.S. family office include:
- ownership of U.S. business interests or substantial U.S. investments;
- family members in the U.S., whether for college or part-time residency,
or family members with U.S. citizenship or so-called “green cards”; and
- future plans for one or more family members to immigrate to the U.S.
Other families wish to develop a U.S. presence to serve family members as
they interact with the United States. There are a myriad of factors
motivating these families, such as the following:
- U.S. Base for Direct Investing Activities —
Many families desire a U.S. family office presence to execute and support
direct investment activities in the U.S., Latin America and beyond,
capitalizing on a U.S.-fixed base and the stability of the U.S. regulatory
and financial system. These families draw upon a large pool of world-class
professionals (such as financial advisers, lawyers, accountants and
trustees) for family office staffing and expertise, optimizing deal flow
and facilitating oversight over U.S. and Latin American investments.
- Flexibility — Now, more than ever, family
structures must be flexible to address tomorrow’s changes. More and more
families have utilized U.S. structures, including a family office
component, to take advantage of their adaptability and enhance the family’s
ability to address global legal and political developments.
- U.S. Regulatory and Legal Stability — The “rule
of law” governs and custom dictates adherence to national, state and local
laws. Incidence of corruption is low. When dealing with non-U.S.
jurisdictions, the U.S. federal government has substantial leverage to
protect the interests of U.S. business institutions, including family
- Privacy and Confidentiality — A U.S. family
office can be structured to foster the family’s privacy and confidentiality
concerns, keeping investment management within the family through creating
their own fiduciaries and investment managers. In addition, the U.S. is an
excellent jurisdiction for maintaining financial privacy — an issue of
paramount concern for families facing security threats (including kidnapping
and other threats of ransom) in their home jurisdictions due to their
wealth. Some of these families doubt their home countries’ ability to secure
family financial information reported under regimes such as the Organisation
for Economic Co-operation and Development’s Common Reporting Standard (CRS),
currently operational in 55 countries (with more than 100 countries
operating under CRS in 2018). Financial privacy is deeply rooted in U.S. law
and public conscience.
- Governance and Management — Families utilizing
U.S. vehicles in their structures have available state-of-the-art family
management and governance techniques afforded by jurisdictions such as
Delaware and Florida. These techniques can be incorporated into a U.S.
family office structure, allowing a family to implement family governance
mechanisms that evolve over time and facilitate the smooth transfer of
family decision-making to subsequent generations.
- U.S. Immigration Strategy — Despite heated
political discourse related to undocumented immigration, many channels to
legal U.S. immigration exist for wealthy non-U.S. families (including the
EB-5 program providing for investment-based permanent residence, whose
minimum investment criteria — generally $500,000 or $1 Million — may
increase soon), and the Trump administration has promised immigration
reform to make the process more streamlined and open than in the past. A
U.S. family office can be established in conjunction with a U.S.
immigration strategy, ranging from a so-called “green card” (which, while
permitting permanent U.S. residence, subjects an individual to worldwide
U.S. income taxation), to other U.S. visa options that permit longer-term
U.S. stays without subjecting the individual to worldwide U.S. income
taxation. A U.S. immigration strategy can be combined with other passport
options in the E.U. and elsewhere to provide a family with maximum
flexibility in travel and residency.
Advance U.S. tax planning for any non-U.S. family contemplating a U.S.
family office branch (along with planning for U.S. investments in general)
is imperative. While a U.S. family office may increase risk of U.S. tax
exposure, such exposure can be substantially mitigated, or in most cases,
wholly eliminated with proper U.S. tax advice. In short, by utilizing the
right structural techniques, a U.S. family office branch need not expose
family members to worldwide U.S. taxation and, indeed, any exposure to the
U.S. income and transfer tax regime can be minimized.
Any questions about the tax, operational, securities, privacy and other
matters related to a U.S. family office base may be directed to the members
of McGuireWoods’ global private client team listed below.