A family office is comprised of typically having an attorney on the team, having a dedicated accountant or CPA on the team. An investment advisor or an investment advisory team on the team. And you’ve got these people working exclusively for the family and for the family’s best interest in guiding and managing the wealth that they’ve amassed, and the properties that they have and all the various tax returns that they have to file.
So the concept of that family office can actually be duplicated by an individual, by a person that may not have accumulated that massive amount of wealth but has enough wealth and enough issues to deal with that would warrant the idea of having a team of people working for them. Now oftentimes, people don’t deal with this way, they deal with it in kind of a compartmentalized approach where they deal with things separately and they really don’t have the professionals communicating with one another and then it really falls upon them to make sure that the various parts are working.
So, your accountant might say well you might want to look into increasing your 401k, and then you might go to your advisor and the financial planner might say well you might want to talk to your accountant about this. And then you become that person but in many cases, those people never talk to each other, those professionals aren’t in sync.
If you’re working with an advisor that takes a holistic approach an advisor that sees the benefit of making sure that all the parts are working, it would be natural for that advisor to then quarterback these relationships that you have these other professionals. That advisor should want to talk to your CPA, to make sure that the advice that they’re giving is going to work. And in fact, they wouldn’t want you being in the middle of that they’d rather communicate and make sure that it’s working. The advisor might want to talk to your attorney the financial planner might want to talk to your attorney to make sure that estate planning documents are appropriate. They might want to communicate with your property and casualty agent. The person that’s handling your automobile and homeowners insurance.
Just imagine for a minute if you think you have everything handled. You’ve got your investments and taxes and your insurance you’ve got all that in place, but just imagine if, when you set up the insurance on your automobile, for example, you were looking to save some money and you tried to get the lowest cost insurance, but in doing that you didn’t realize that you also got the lowest limits of coverage. So you save money on your automobile insurance but you realize unknowingly, you have insurance that’s really not that comprehensive. Now, the person you talked to on the 800 line usually doesn’t ask you about your net worth, it doesn’t ask you about your investments, and how much you accumulated. But imagine what it would be like if you then wound up having an automobile accident where you were held at fault and that low-cost insurance that you had on your automobile had a limit of liability that was below that which you were being held liable for. Well in that instance they wind up suing you and coming after your assets. So, by not having that safe and not making sure that your automobile insurance was appropriate for the level of assets you’ve accumulated, you might have not knowingly, put yourself in a position to be subject to losing some of those assets in a lawsuit.
And that’s why I think it’s important to make sure that not only do you talk to the various professionals, but the various professionals talk to each other that are on your team. Weâre not talking about having them talk to each other on an ongoing basis, but maybe at least check in once a year or maybe once every couple of years to make sure that things are being handled that based on whatever you’re trying to accomplish from a financial point of view. To make sure that your limits of liability are appropriate for the amount of assets that you’ve accumulated to make sure that you’re not stuck in that situation. Or to make sure that the accountant is handling the tax planning that you put in place, and there’s coordination there so that you’re maximizing for example your 401k, taking advantage of tax savings.
So, having your professionals that are not only willing but actually talking to one another, makes a lot of sense. And putting yourself in a position where that family office can be put in place for yourself, even though you might not have accumulated hundreds and hundreds of millions of dollars, but making sure the money that you’ve worked so hard to accumulate not only is protected, but also best managed from a tax standpoint, and protected from liability and able to pass on to the next generation with the least amount of cost and complication.