A Family Is …
When SEC officials set about defining “family office,” they discovered that “family member” was a little harder than they had expected.
The family office rule drafters had proposed to define the term “family member” by referring to the “founder” of the family office, “and generally to include the founder’s spouse (or spousal equivalent), their parents, their lineal descendants, and their siblings and their lineal descendants,” officials say in the preamble to the proposed rule.
“Commenters observed that the proposed rule implicitly assumed that the founder of the family office is the initial generator of the family’s wealth and is an individual or couple,” officials say. “They noted that in many cases, however, family offices are established by persons several generations remote from the initial wealth generator.”
The original definition could have allowed a family office that was formed years ago to provide services to individuals who are now third or fourth cousins to one another, but that a new family office would have to wait two or three generations to serve a group of third or fourth cousins.
Some commenters suggested that the SEC not define the term “family” at all; others recommended that the SEC “expand the rule to treat as family members grandparents, great-grandparents, aunts, uncles, great aunts, and great uncles of the founders and their spouses and children.”
The SEC has decided to let a family choose a common ancestor, who may be dead, and define family members by reference to the degree of kinship to the designated ancestor, officials say.
“In order to prevent families from choosing an extremely remote ancestor, which could allow commercial advisory businesses to rely on the rule, we are imposing a 10 generation limit between the oldest and youngest generation of family members, officials say.
- Allison Bell