As family offices go remote, unexpected consequences hit home 

Feb 15, 2023
1 year ago
Chair on the beach
Chair on the beach


Like most organizations around the world, family offices have changed significantly since the pandemic. Many have shifted to remote work, and that arrangement is likely to become permanent.  

While that has embedded a new level of flexibility across family-office organizations, it has also created regulatory headaches and tax compliance challenges.  

Families should be asking the following questions when thinking through tax challenges: 

  • Even “no tax” states come at a cost — does the potential tax benefit outweigh any restructuring needs or added complexity that comes with a move? 
  • What new costs will arise as a result of becoming a multistate employer? 
  • How can businesses be structured to be well-positioned from a tax and estate-planning perspective? 
  • Does it make sense to consider other options, like a Roth IRA conversion, to take advantage of lower current tax rates? 

As family members and staffers have gone remote or in some cases fully relocated, they may now be in new jurisdictions. As a result, the tax picture may be increasingly complex. According to a recent survey of family offices from EY, 72% of families now view the tax consequences of working remotely as a potential problem.  

“The pandemic is really impacting offices from a state and local tax perspective,” said Rich Goldstein, a senior principal and co-lead of the state and local tax practice at the accounting and consulting firm Berdon LLP in New York. “The multistate-employer trap is a real issue, and families are often surprised about what all they need to do to make sure they are in compliance state to state.”  

If a person moves to a state with an income tax, the family office will be subject to withholding for that person as well as face potential insurance concerns, Goldstein said. Any insurance benefits could have different requirements state to state, he said. If individuals are working remotely from a bunch of states, keeping track of all those requirements could be cumbersome.  

“There are other issues as well, if certain states have special rules,” Goldstein said. “In New York, for example, if someone is working remotely but they come to the city a few times a week or a month, they are going to be subject to city tax as well. So there is a price for convenience, and people are often surprised by that if they are thinking, ‘Well, I don’t live there.’ ” 

Tom Gibson, a senior tax strategist at Florida-based TSP Family Office, agrees. “About 10 percent of the families I work with don’t live where they lived two years ago,” he said. “One of the big issues that arise is that families act first and update later, so they will move and then tell tax and compliance. We have to determine after what we need to do to change the estate documents and update any tax planning.  

“There are these narratives out there that everyone should just move to Florida or Texas because they are no-tax states. That’s not entirely true. You’re still going to pay something, whether it is in how an entity is structured or through user fees or property tax. If you have a complex organization, the benefits of a no-tax state may not be that meaningful in the end.”  

Gibson said he spends a lot of time with families discussing how businesses are structured to make sure that families aren’t going to be surprised with business taxes when they make a move. “Florida, for example, has some corporate tax issues that most people aren’t aware of when they decide to make the move,” he said. “So we have to look closely at what the business does and where they are actually making money.” 

Other tax issues also are on the horizon. Many of the federal deductions ushered in by the Tax Cuts and Jobs Act of 2017 are set to expire in 2025-26.  

“There are some deductions people are getting if they have qualified businesses that are going to go away unless something changes,” Gibson said. “There is some lead time now to understand the tax implications, but if people wait, that’s when they tend to be surprised.” 

Also, Congress is considering an update to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which will change how some retirement rules work. Provisions under consideration would extend the age range before a retiree has to begin taking required minimum distributions from retirement accounts and amend the rules for retirement account assets left to beneficiaries.  

“It may be worthwhile to look at issues like converting from an IRA to a Roth IRA or just examining how your retirement plan is structured so that you are well-positioned if anything changes,” Gibson said.