The Legal Mistakes Quietly Destroying Family Office Wealth

0:03Joseph, I want to get to you. You work with a lot of family offices. You see a lot of pain points on the legal side most likely. give us an idea of with the family offices you work with what are the most painful things that are going through now is it execution is it governance is it bringing the next generation on what do you see as the biggest pain points now well I guess I could think of a few ideas so one issue is that when you have very elderly people investing sometimes it makes sense to not invest in assets which cannot be easily divided. So if you have these long-term investments and then they have to be divided between

0:52your stepchildren, let's say real estate investments, which really need to be sold and divided because the stepchildren and the children might not want to be partners. So when you have groups of people who might not want to be partners and they have assets that cannot be divided, it becomes a big problem. So I think as family office owners get older, they might want to keep in mind thinking about what's going to happen afterwards when they need to be divided, when they look into the types of deals they want to get into. Maybe even a mix is okay. Sometimes there are buy-sell agreements that could be implemented.

1:31But just to ignore that is not a good idea. Now, other issues that come up are clients who set up asset protection trusts or estate tax planning trusts, but they don't follow the rules. So that is a big, big problem. As I said before, a lot of people just don't understand the rules. They will never explain them clearly. For example, dad wants to manage everything, but he still wants to have it asset protected and protected from estate tax. It doesn't always work that way. There are rules that have to be followed. Dad can't just log in online and do whatever he wants. He can't always just put his own assets into a trust and control himself.

2:18So what's very, very important is to fully understand the rules that were created for you. Every case is different. Whether you have trustees and you need investment advisors and you need distribution approval. Make sure you know what your rules are and that you follow them because there are many cases of creditors coming after trusts and they could break it. Estate tax audits, they could come in and show that, yeah, dad really treated his trust as his piggy bank even though his wife was a trust, mom was a trustee. So it's very important to follow those rules. it's it's what they don't know they don't know and and it's amazing because a lot of families or the people that create their wealth from a business i swear it's like they forgot how they got successful they'd hire the best people they'd go through i see richard laughing they go through and they you know they have quarterly meetings and they'd have objectives and they'd have you know talk about what their goals are and they'd have parameters of how to do the business and then they forget about it all.

3:30And you have to do that. You have to, just like a property, you have to start with a strong foundation, you know, governance. I can't tell you how many families are like, they're just blown away, you know, because you need that communication. You need that understanding, especially if you want your legacy and your monies to live on. You have to include all the family members. They need to be a part of it. And, you know, you need to pay for good people, too many families they just don't want to pay. And so it's a matter of You get what you pay for. Yeah, you do get what you pay for but even hiring, I mean, it's really crazy.

4:15But it's really understanding what those, what I call soft issues are, right? Family councils, investment policy statements, investment parameters. You asked about that before. They don't have any the majority they don't have any and and then the governance and and how does the family communicate and so that's where they need to start and that's the biggest trouble from a family's perspective so let me touch up on that do you recommend you know for the family office that you work with because they have it so unstructured do they hire someone internally or hire a service provider to outsource everything you know that's a good question um you know the definition there's different definitions of family office from our perspective it's worth 250 million or more typically a family and tom can probably confirm this or whatnot doesn't hire an internal cil till they have about 750 million so you need scale you do it which is sounds crazy but that's where the numbers come from a lot of times but that's when you can really start using a real multi-family office and those are not just investments if they're just doing investments they're an RA and going into the governance and because they're going to know who to talk to whether it's on the legal side because they're not going to have a lawyer internally and then they'll just graduate eventually to the point where they you know they hire somebody but usually at least one when they do that's one person and they're the quarterback yeah I have to agree with with DJ there you know I even go higher on the number I think to really be a single family office you should have a billion dollars investable because it's expensive right and if you really want to have um you know an investment team an accountant team a legal team right it all adds up right you can't you can't have to say hey i have a hundred thousand dollar net worth and all of a sudden you're a single family office right so you gotta it doesn't make any sense it sounds great to say you're a single family office but um at a certain size you're better off just being part of a good multifamily office that can provide you those services so that you can focus on what you're good on, what you're good at.

6:27And, you know, I think we were discussing this, you know, accounting and taxes, it's so important, like the alpha that can be created in just understanding your tax structure can be a lifeline of a difference of whether you're paying capital gains or the difference between structuring it as debt, right, where you have to pay ordinary income versus preferred equity where you're paying capital gains, right? So having someone that really understands those things are really important. I'm sure you would agree on the tax part, right? Yeah. It's back down to foundational things, right? Just the basics, the fundamentals.

7:10Hi, I'm Richard C. Wilson. Our community has closed over$1 billion of transactions. We have over 16 million registered members across 100 plus LinkedIn groups. And I own billionaires.com and run Family Office Club. Over 19 years, we've hosted 300 live events. I've built 50 of our own AI tools. And between the billionaires I've interviewed, there's some millionaires who've spoken on stage and over a thousand decamillionaires who have presented, we've found there's three things that really can build your wealth. Proximity, super intelligence, and scale. That's exactly what we provide at Family Office Club.

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