Wealth Management is an intricate process, and this is even more so for High-Net-Worth Individuals (HNIs) and families. individuals need to find creative ways to manage their finances to ensure their wealth grows and is properly transferred to their beneficiaries. Effective Wealth Management also serves as a tax efficient tool.
Family Offices and Charitable Trusts are two of such forms of Wealth Management that enable individuals to organise and disburse their resources in a way that ensures maximum impact and efficiency. But what do these concepts represent? Let us explore.
A Family Office is a private wealth management firm set up or hired by an individua or family to manage their finances and investment portfolios among other things. Family offices are usually created to handle the wealth of individuals who are worth more than $100 million (approximately N41bn in today’s exchange rate).
Family offices also provide other services such as tax, generational wealth transfer, lifestyle management, recruitment of household staff, management of legal affairs, property management, day-to-day accounting, budgeting, insurance and philanthropy. Family offices can be classified into two types; A single-family office, which caters to one wealthy family, while a multi-family office offers its services to multiple clients and families.
A Family Office is essential because it provides control over your assets. It can serve as a one-stop-shop for all the unique needs of wealthy families including the provision of private security detail, aircraft management, travel planning and other concierge-style services. A family office makes life less stressful for HNIs.
A Charitable Trust is a Trust set up to manage and protect assets on behalf of a charity or non-profit organisation and other beneficiaries. There are two main types of Charitable Trusts; Charitable Remainder Trusts and Charitable Lead Trusts.
A Charitable Remainder Trust is an Irrevocable Trust which provides an income stream for the donor for a specified period, after which the rest of the Trust is donated to a previously stipulated charity. This Trust entitles the donor to reduced income tax and estate tax and an exemption from capital gains tax when the asset is sold.
A Charitable Lead Trust, on the other hand, is a Trust created to provide financial support to a charity or non-governmental organisation for a specified period, after which the remaining assets will be transferred to the donor’s family members or other beneficiaries.
In summary, both Family Offices and Charitable Trusts provide families with the opportunity to manage their wealth effectively. The major advantage of a Family Office is that it gives the individuals or families complete control over the management of their assets. The Charitable Trust, on the other hand, is a great way to enjoy tax breaks and make a lasting impact on society. Individuals can choose one or the other, or both, depending on their long-ranging goals and plans.