INSIGHT

How to select the best family office structure

Kris Marney • March 11, 2025

For new family offices, one of the most important decisions you’ll make is your family office structure. That’s because the family office structure you choose impacts every financial, operational, legal, risk, succession planning, and tax move that comes after.

What options do you have? What considerations should you keep in mind? Which family office structure will yield the most fruitful outcome, enabling you to grow your family wealth and watch it blossom for future generations? Let’s find out.

Why does your family office structure matter?

Family office structures influence every aspect of a family’s financial and investment strategy, from the assets they manage to their legal liability, estate and tax planning opportunities, risk profile, and more.

The family office structure acts as a metaphorical financial chessboard, determining the pieces you have, the moves you can make, and the oversight that governs them. It can affect how efficiently you achieve your goals, maintain privacy, and ensure governance.

For instance, understanding the differences between a Lender-like structure—positioning your family office as a business, a precedent the Lender Management vs Commissioner established in 2017—and other models can provide valuable insights into how family offices can operate and the benefits and drawbacks accompanying each option.

Four overarching types of family office structures

As you and your family members start accumulating significant wealth—whether through a legacy structure, business venture, significant liquidity event, or a combination — establishing a dedicated family office to manage everything becomes more attractive.

Let’s look at the four broad categories of family office structures, how they work, and how they set you up for the future.

1. Virtual family office (VFO)

A virtual family office is a flexible structure where a family manages the essential financial functions of the family office and outsources other specialized needs to external advisors, such as investment managers, legal counsel, and tax planning specialists. This setup allows families to access a wide range of expertise without maintaining an entire in-house team.

How does this differ from a single-family office that leverages outside support? The family members themselves typically coordinate everything in a virtual family office.

Pros: Cost-effective, scalable, accessible globally, and offers customization. Families can select specific services and advisors based on their needs. They can also keep family office governance agile and “in-house.”
Cons: Requires significant coordination effort, limited personal interaction, “siloed” service providers, and a higher potential for resource turnover. Fortunately, quarterbacking all of the advisors and coordinating for the family is a core BPM service that addresses this challenge.

A virtual family office is flexible and relatively straightforward to set up. However, the operational and coordination responsibilities can become cumbersome for family members, especially when passing wealth (and all the responsibility) onto the next generation.

2. Embedded family office

An embedded family office uses the existing resources of a family business to manage family wealth and administrative tasks. It is often informal and relies on employees who serve both the business and the family.

An embedded family office is exactly as it sounds—the family office is integrated into the family business, leveraging its infrastructure to reduce costs. However, this setup can blur the lines between business and personal matters.

Pros: Cost-efficient, integrated services, and familiarity with family assets.
Cons: Lack of focus, poor privacy controls, lack of internal controls, risk management challenges, and potential governance issues.

Embedded family offices often happen organically, but they open the family up to privacy, tax, business continuity concerns and even fraud risk.

3. Single family office (SFO)

A single-family office is an arrangement that serves the needs of a single family (or multiple generations of one family), providing bespoke financial, legal, tax, HR, cybersecurity, estate planning, philanthropy, and operational services.

A large benefit of an SFO is that it offers complete control over decision-making and operations, both of which can be handled internally or through a network of outsourced family office specialists. That choice depends on the in-house expertise of the family, their goals, and skill gaps they need to fill to keep the single family office running smoothly.

Pros: Offers customization, control, and privacy. It’s independent of the family business, focusing instead on wealth accumulation and administration for the family’s goals.
Cons: High operational costs, complex ongoing financial management, and can be influenced by family dynamics.

Established single family offices tend to have a robust executive team—Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Investment Officer (CIO), Chief Legal Officer, etc—and close outsourced specialists to help them manage everything effectively, making them best for ultra-high-net-worth families.

4. Multi-family office (MFO)

A multi-family office (MFO) is a company designed to serve multiple families, pooling resources to offer a broader range of services at a lower cost per family.

MFOs and SFOs share a similar base structure, but a multi family office manages the wealth of two or more unrelated families. This arrangement provides access to diverse expertise and investment opportunities.

Families share costs and resources, benefiting from economies of scale. However, services may be less tailored to individual family needs.

Pros: Cost-effective, offers diverse expertise, and access to a wide range of investment opportunities.
Cons: Services may be less customized, and families have less control over operations compared to a single family office.

Multi-family offices often have diverse and varied origin stories. Some started as SFOs and grew into a commercial entity, offering their expertise to other families. Whereas others are managed by private banks and wealth management firms.

Each structure has its advantages and disadvantages, and the choice depends on a family’s vision, needs, goals, and resources.

Options for family office legal structures

Choosing the right legal structure for a family office is crucial for efficient operation, regulatory compliance, and wealth protection. Here are some of the most common legal structures used by family offices.

General partnership

A partnership involves two or more individuals or entities sharing ownership and decision-making responsibilities. This family office structure is simple to establish and often less formal than corporations.

Partnerships are flexible in terms of ownership and management, making them easy to set up and operate. They can also be less rigid than corporations, which can reduce administrative burdens.

However, partners have unlimited personal liability, which can expose family assets to risk. Additionally, partnerships may struggle to attract external capital, which can limit business expansion opportunities.

Family Limited Partnership (FLP)

A Family Limited Partnership is a structure where family members create a partnership with both general and limited partners, typically with senior family members as general partners maintaining control.

FLPs are effective vehicles for transferring wealth while allowing the senior generation to retain management authority over family assets.

The benefits of an FLP include asset protection for limited partners and potential tax advantages through valuation discounts when transferring partnership interests. FLPs also provide centralized management of family investments and business holdings.

Limited Liability Company (LLC)

An LLC combines the liability protection of a corporation with the tax benefits of a partnership. It offers flexibility in ownership and management structures.

The benefits of an LLC are that it provides personal liability protection for family members, allows for pass-through taxation, and offers operational flexibility through its management structure. LLCs can be taxed as sole proprietorships, partnerships, or corporations, providing additional tax flexibility.

While LLCs require more formalities than partnerships, they are generally simpler to establish and maintain than corporations. But tax treatments of LLCs can vary by jurisdiction, so it’s important to consider local laws.

C Corporation

A C Corp is a traditional corporation that provides strong liability protection and can issue stock to raise capital. It is well-suited for large, complex operations.

C Corps offer many advantages, like robust liability protection. They also offer the ability to attract investors and build large-scale operations.

But the tax liabilities for C Corps are more complicated. C Corps are subject to double taxation (at both the corporate and shareholder levels), which can increase tax liabilities. They also require more stringent formalities and compliance measures.

S Corporation

An S Corp passes corporate income, losses, deductions, and credits through to shareholders for tax purposes, avoiding double taxation. S corps offer liability protection, provide tax benefits through pass-through taxation, and are suitable for smaller family offices.

But they can also be limiting. S Corps are limited to 100 shareholders, all of whom must be U.S. citizens or resident aliens. There are also restrictions on the types of shareholders and stock issuance.

Trust

A private trust is often used as a wealth-holding vehicle rather than the family office itself. It provides fiduciary services and can be part of a broader family office structure. Trusts are essential for estate planning and asset protection.

Trusts are less commonly used as the primary structure for family offices, as they are typically more complex and may not offer the same operational flexibility as other structures. However, they can be valuable for specific asset management and philanthropic activities.

The right legal structure for your family office depends on your specific needs, resources, and goals. It’s also important to consider factors like liability protection, tax implications, and operational flexibility.

Factors to consider when selecting a family office structure

Choosing the right family office structure involves carefully considering several key factors that align with your family’s legacy.

Your family’s wealth and legacy goals

The right family office structure isn’t one-size-fits-all. It’s vital to put your vision and values at the center of everything. Start by considering your long-term goals, wealth preservation, business succession, or philanthropy. Different structures may better support specific objectives.

For instance, a family with a strong commitment to environmental conservation might prefer a single family office for its ability to tailor investment strategies and philanthropic initiatives to their values. Or, if your family has significant business interests or complex investment portfolios, a structure that provides robust management and oversight may take priority.

It’s also important to consider how the structure will handle debt management and financial risk mitigation strategies.

The amount of control you’re after

Control over decisions, governance, and more is vital when selecting an appropriate family office structure. For example, families seeking maximum control over decision-making and operations often prefer a single family office, which allows for complete oversight and customization.

Along with the level of control you want, be sure to carefully consider who the family office’s main decision-maker will be. Appoint different people to make key decisions and determine how centralized you’d like that control should be within the family office structure.

The amount of privacy you want

Some family office structures, like embedded family offices, leave your finances like an open book. But that can get quite complicated as your wealth grows. Wealthy families prioritizing privacy may prefer a single family office, as it typically offers more confidentiality compared to other options like a multi family office.

Be sure that your chosen structure has robust security measures in place, especially when handling sensitive financial information.

Jurisdiction considerations

The jurisdiction where a family office is established can significantly impact legal and tax implications. Consider factors such as income taxes, liability protection, and asset protection when deciding where to set up the office.

Ensure compliance with local regulations and consider how they might affect operations and governance.

Governance structures

How you structure your family office has so much to do with who will be operating it as well as their individual roles and responsibilities. A well-defined family office governing board helps navigate family dynamics and ensures alignment with family values and goals.

Be sure to clarify those roles, responsibilities, and decision-making processes. These choices are crucial for the long-term success and sustainability of a family office.

What family office services you’ll need to outsource

Some roles in your family office you’ll likely want to keep within the family, and others will make sense to outsource. First, you’ll need to understand the types of essential tasks that come with running a family office, like investment management, legal, tax, estate planning, HR, philanthropy, insurance, technology, or governance support.

As you consider how to manage your family office, it’s essential to decide which roles to keep in-house with family members and which to outsource to non-family members.

If you have a family member who is a seasoned CFO, they may feel confident leading the strategic direction for the family’s finances, ensuring that the investment strategy and decisions align closely with your family’s values and goals. This hands-on approach can be particularly beneficial for core investment decisions, where maintaining control and personal oversight is crucial.

On the other hand, specialized areas like legal and tax services often require expertise that may not be readily available within the family. In such cases, many family offices would outsource these tasks to professionals who can provide peace of mind, ensuring that your family office remains compliant with complex regulatory requirements and benefits from the latest legal and tax planning strategies.

By carefully evaluating these factors, wealthy families can select a family office structure that aligns with their unique needs, goals, and values, ensuring long-term legacy preservation.

Create the right family office structure with support from BPM

As you navigate the complexities of establishing and managing a family office, it’s crucial to have a team that understands your unique needs and goals.

BPM’s Family Office Services are designed to help families with significant resources create a tailored structure that simplifies complexity, ensures financial well-being, and supports their legacy.

Unlike other firms, BPM offers integrated planning for family offices, including front-end relationship management by coordinating the family’s advisors, strategic wealth transfer planning, and back-end financial management, ensuring all aspects of your family office are optimized for success. Our team is committed to empowering your family office to achieve its goals while simplifying financial management.

“We personalize our services to suit the family that the family office works for. We deliver timely, quality service to get a family where they want to go. Competence, knowledge and our professional skills matter. Absolutely, these matter. But it’s personalized work we enjoy. It’s working with people. That’s what matters most.” – Kris Marney, Director, Family Office Services

Contact our Family Office Services team to explore how BPM can help you create a customized family office structure that supports your family’s wealth and financial well-being both now and for future generations.