3 minute read 25 Sep 2019
Planting a tree

How to ensure a great future for family wealth?

By

Wout Coppens

EY Belgium Private Client Services Partner

Family governance, tax & legal planning for family business owners and family-owned businesses is my focus. Passionate about entrepreneurship, cooking, photography, traveling and my family & friends.

3 minute read 25 Sep 2019

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What are the benefits of a single family office and how can entrepreneurs set one up?

To harvest an apple tree, you do not cut it down, but you let it grow so that different generations can harvest the fruits. With family wealth, it is exactly the same. Some families rely on a multi-family office (MFO) for structured asset management, which provides services to multiple families. But increasingly, a single family office (SFO) is set up with more extensive, personal services and even greater confidentiality for the family. The single family office has a strong tradition in countries such as the Netherlands, Germany and the UK, but it is also becoming more and more established in Belgium.

SFO after the sale of a family business

The sale of the family business is often the reason for the establishment of a family office. At that moment a large sum is added to the family holding. Fiscally, it is not interesting to immediately liquidate the holding company and distribute the money to the shareholders. Moreover, most families find it important that several generations will be able to reap the benefits of what previous generations have achieved. By managing the assets together in a structured way, a better return can be achieved and the sense of belonging to the family business can be maintained.

Wealthy families as well, who do not sell their business but especially want to keep the focus on the management of the family business, often need guidance in the management and decision-making concerning their business and privately accrued assets. An SFO handles the worries for the family, prevents capital fragmentation – with potentially better returns – and offers the family peace of mind. Due to good agreements and central management, it also runs less of a risk that a wrong decision by one of the members will put the entire family in a negative light.

By taking into account the worries of each family member individually, you create broad support for the final decisions regarding the family office.
Wout Coppens
EY Belgium Private Client Services Partner

Virtual family office

In theory, there is no minimum on the assets a family must have in order to be able to set up an SFO. But depending on what services the family expects from the SFO and how many staff members will be needed for this, you see in practice that an SFO really makes sense starting from a total capital of around 30 million euro. If that is not (yet) available, the family can first take an MFO or work with a virtual family office (VTO). In that case, the family does not set up a separate company and mainly uses external consultants for services.

Step-by-step plan for establishing an SFO

1. Extensive consultation with individual family members
At EY the establishment of a single family office starts with an extensive survey and a discussion with each of the family members individually. Every member is intensely involved in order to clearly know what everyone thinks about it individually. Certainly in families with a strong head of household or another dominant family member, no one's voice may be lost.

So what kinds of things are being discussed?
The following questions, among others, are asked in preparation for the establishment of a family office:

  • Which family members receive shares in the SFO? Only direct or also relatives related by marriage? What happens to the shares if someone dies?
  • What will the SFO invest in, and in what certainly not? An investment and/or real estate portfolio? Participations in startups and scale-ups? In other family businesses, private equity, real estate...? How does the reporting over the achieved results take place?
  •  What services will the SFO provide and which employees are needed for this? Is it only about management and reporting or also about the fiscal and legal guidance of the family and the individual family members (including succession planning)?
  • Which of the family members will play an active role in the SFO and under what conditions? What role can a family member take on (member of the board of directors, administrative assistant, active role in implementing the investment strategy, etc.)?
  • What dividend policy will the SFO pursue? What percentage of the profit is distributed and in which cases does the SFO deviate from this policy?

2. Consensus proposal
A consensus proposal for the design and operation of the SFO is then presented to the family and discussed as a group. Possibly further discussions with individual family members follow to arrive at a final document.

3. Creation of SFO
The family office is designed on the basis of the consensus reached. If an instrument is available such as a family holding company, it can be converted into an SFO. If not, a company will be established. A board of directors and often also an advisory board are appointed, staff is recruited, a structure is created for a good corporate house holding, reporting, and so on.

4. External advice
Depending on the employees that the family office itself has, it will continue to rely on external expertise to a greater or lesser extent after its establishment. Thanks to the trust that we have established with the family, it often occurs that over the years EY continues to act as an external expert for a family office or sits on the advisory board. For the valuation of a scale-up in which the family wants to invest, for example, for advice on the taxation of foreign real estate or when a family member wants to start a new activity using part of the family assets with the support of the family. In any case, EY has very broad (international) inhouse know-how to be able to answer all these types of questions.

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Summary

The single family office (SFO) has a strong tradition abroad, but is also becoming more and more established in Belgium. An SFO handles the worries for the family, prevents capital fragmentation – with potentially better returns – and offers the family peace of mind.

About this article

By

Wout Coppens

EY Belgium Private Client Services Partner

Family governance, tax & legal planning for family business owners and family-owned businesses is my focus. Passionate about entrepreneurship, cooking, photography, traveling and my family & friends.