practicemanagement

BY JEFFREY MESSERSCHMIDT , CPA AND JONINA FRIEDMAN

From an accounting perspective , it entails handling and advising their bill pay , money movement , credit and debit cards , payroll , gifts , budgets , projections , general ledger accounting , and related reporting for both the individuals ’ investment portfolios and , more importantly , lifestyle expenditures .

The latter part is what personally excites us , as it provides a glimpse into the habits of how and why those who have large sums of money choose to spend it .

Family office work also means liaising with third parties such as attorneys , trustees , real estate brokers , owners ’ reps , estate managers , housekeepers , personal assistants , interior designers , engineers and other professionals on additional personal matters , including private aviation , yachts , vacations , construction and renovation projects , luxury home rentals , and weddings , to name a few . Another area that can be very intriguing is charitable giving , including via a donor advised fund ( DAF ) or private foundation ( s ). In combination with the personal spend , this gives an accountant a holistic view of what is important to the client in terms of their daily affairs and what greater impact they are hoping to make in terms of social , business , environmental , educational and other causes throughout their lifetime .

While listing the types of transactions family offices are privy to seeing , it ’ s important to stress that these activities and any details surrounding specific

clients are kept in strict confidence . Even an engagement letter between a firm and a client may now contain a nondisclosure agreement to doubly protect the client ’ s identity and information , since they typically don ’ t want their private life out in the open as public knowledge .

Furthermore , their assets may be held in trusts , LLCs or other entity structures to further mask who is truly behind a real estate purchase / sale , for example , or protect them from being sued for their entire worth by dividing assets into different legal entities .

Why Hire a Family Office ? The answer is straightforward : to make their life easier and hopefully less complicated .

Generally , there are various moving parts at any given time , and it can be difficult to keep things organized for them to make wise and timely decisions . Choosing to engage a firm to keep track of the laundry list of items and related cash inflows and outflows frees up an individual or the family ’ s time to focus on more important and pressing matters , such as their family and / or business ( es ).

Also , many ultra-high net worth individuals do not have a finance or accounting background ; hence , sticking to a budget or creating a projection may not be in their wheelhouse .

As a result , seeking a family office that can service them along with other like-minded families ( making it a multifamily office ) keeps the fees for doing so lower than if the individual were to start their own family office or add a full-time accountant onto their payroll ( otherwise known as a single-family office ).

What Do Family Offices Add ? The fulfilling part of being a family office accountant is collecting , tracking and presenting an individual ’ s or family ’ s cash flows to them in a way that empowers them to make more informed decisions in real-time . If they know exactly where every penny comes from and ends up , then they are also aware of how much is liquid and available to invest or spend elsewhere .

Another way in which a family office helps clients is by providing accounting services for their startup entities that don ’ t yet have an accounting team in place . While their business is getting off the ground , the family office accountants keep the books , tracking research & development costs that will ultimately be amortized after the product launches in the market , as well as all other operating expenses for the founder / entrepreneur ( i . e ., the family office client ). Before accepting outside investments , these entities often convert to C corp status for various reasons , one being the gain exclusion benefits afforded to Qualified Small Business Stock ( QSBS ). As part of that process , valuations and cash flow

8 CALIFORNIA CPA JANUARY / FEBRUARY 2025 www . calcpa . org