Family office: models, structures, taxation, and evolutions were the focus of the seminar that closed the cycle of meetings organized in 2022 by Step, the Italian branch that associates professionals and experts in the field of trusts, estates, and successions. In particular, with the moderation of Marco Cerrato (president Step Italy), the topic was debated by Josip Kotlar (Politecnico di Milano) together with Stefano Massarotto (Facchini Rossi Michelutti), Andrea Tavecchio (Tavecchio & Associati) and Alberto Toffoletto (Advant Nctm).
State of the art in Italy
The starting point is that the assets of an entrepreneurial family have not only business dimensions but also socio-emotional dimensions (such as the continuation of the family dynasty, the exercise of authority and control over the business(es), the sense of belonging and identity, and the maintenance of a favorable family and corporate reputation) that profoundly influence strategies and performance of such entities. Family offices (Fo) are, therefore, organizations that coordinate, strategically direct, and manage the assets of one or more business families with a logic that also considers future generations. If the keyword is the heterogeneity of these structures, the Family Office Observatory of the Milan Polytechnic chart represents the four main configurations to which the different organizations can be traced.
The main categories are single-family offices (when a single family controls and receives services) or multi-family offices (closed and family-controlled or open and professional, not owned by client families).
According to Politecnico di Milano’s Family Office Observatory 2022, there are 214 family offices in Italy, of which 47.2 percent are single, 43.5 percent multi, and the remaining 9.3 percent are banking organizations.
Family offices and the tax variable
How does tax affect these organizations? The tax variable is relevant from several points of view: by legal form (corporation or partnership, commercial or noncommercial trust, regulated or unregulated entity, investment fund or vehicle) and by location (Italy or abroad).
It is difficult, therefore, to determine a priori what is the best form of a family office from a tax point of view. The answer depends on at least three orders of assessment:
1. new tax trends:
Beps (anti-abuse provisions, Cfs, Stable Organization, etc.).
2. changes over time in asset composition and needs of family members
3. facilitative/attractive tax measures:
HNWI tax regimes
favorable assignment of assets to shareholders (Budget Bill 2023)
investment management exemption rule (Ddl Budget 2023)
etc.
A concrete example?
The chart below represents the different situations from the tax point of view in the case of dividend/ capital gain and income from non-harmonized funds.
The professional and evolution of the family office
A necessary premise is that a family office’s functions depend on the family’s needs and that a critical discriminator is the liquidity event, that is, the monetization by an entrepreneur of what has been built up over time. It is easy to imagine that as such disinvestment from family entrepreneurial activity occurs, the portion of the family office’s activities devoted to investment management and philanthropy will increase at the expense of the areas of administration and tax & summer and that activities dedicated to operating companies will disappear. Entrepreneurs, it was pointed out, have a DNA that guides their choice of investments and will favor, for example, participation in club deals over more “static” types of investments.
What are the legal forms of family offices in Italy?
The Observatory shows that limited liability companies (SRL) are chosen by 55 percent of family offices and joint stock companies (spa) by 35.5 percent, while the remaining legal forms weigh in at 9.5 percent.
The process of establishing a family trust
The role of a family office is to help clients think through not only the starting situation but also with medium- and long-term perspectives (5, 15, and 50 years) to assess potential conflicts between the settlor, trustee, beneficiaries, professionals, and protector, mainly assisting the family in selecting candidates to serve as trustee and possibly protector. The family trust can play an essential role in this area.
Among the advantages of introducing a trust in family offices, some features have been highlighted, such as:
- Transfer of assets to a professional;
- Binding of the use of the assets to the settlor’s objective;
- flexible purpose, predetermined, and able to adapt to family needs;
- independent and impartial management.
Finally, there is no shortage of critical aspects, such as the following:
- perceived increased opacity of the structure for AML (anti-money laundering) purposes;
- loss of asset ownership (an institution with strong fiduciary connotation);
- limited operating spectrum (inability to directly perform investment or other confidential services and activities).
