Planning In the Current Economy

We are seeing the biggest fall in the value of their assets since the Great Depression. The shutdown of the economy due to the Covid-19 pandemic will be a recession that will be deep and sustained.  Many are looking at their investment management advisors and wondering at the dismal performance and wondering if it could have been avoided

Is your family wondering what happened with your financial advisor’s plan for you assets? Are you considering a a different direction?

The real challenge will be what to do now to generate income in a volatile and low interest rate environment, with likely income tax rate increases to pay for the CARE Act.  Since 2017, the costs of managing investments are no longer deductible for income tax purposes under section 212, meaning that the fees and costs of generating income are paid in after-tax dollars. The combined state and federal tax rate on income and realized gains is more than 30% in some states.  The cost of generating that income is, after tax, 30% higher than the dollar amount, which means your return is that much harder to achieve.

New Solutions for Tax Savings

 We have developed an Operating Family Office which makes the fees and expenses of managing family wealth deductible again.  Based on the Tax Court decision, in Lender Management (TC Memo 2017-246) the structure and ownership of an operating family office makes expenses deductible under IRC section 162 against income in the operating family office.

Our Operating Family Office is not just designed to save taxes, it is designed to be a profitable operating business by tying the annual compensation to the annual net profit on the investments managed by the Operating Family Office.  Working with outside service providers, such as investment managers, custodians, accountants and private bankers, the Operating Family Office purpose is to the review and oversight of asset managers, reviewing coordinating tax and legal advice, providing strategic planning and regularly meeting with and corresponding with the family.

demonstration of decision making in setting up a family office
See a full demonstration of how this chart helps set up a family office in our video at

Everyone Plays a Role

As an LLC, clients are encouraged to have an active role in the business both to give and gain experience and to avoid reduction of passive losses under section 482. For younger members of the family, the operating family office will be a profitable company that will increase in value over time.  For older members of the family, they can reduce risk of investing in income generating investments in a tax efficient manner and without having to pay fees if  there is not a net operating profit. The Operating Family Office is ideal for operating Qualified Opportunity Zone Funds, Private Foundations and other entities within the Family Office Structure.

Regardless of whether you are young or old, an operating family office run by the right professionals will be the way towards renewed financial security in these volatile and uncertain times. 

Example of Tax Savings*

  • Value of assets in family office: $100,000,000
  • Estimated fees and costs of family office (1.0%) $1,000,000
  • Estimated annual tax savings (state and federal) (30%) $300,000

*figures are based on a hypothetical scenario, result will vary. Speak to your qualified legal or tax advisor about your situation

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