How to Create a Perpetual Family Office
The Mundo team of experts
Mundo´s experts have been asked many times at conferences and by our readers as to how ultra-high net worth individuals, families and international corporations manage to avoid almost all of the taxation and legal burdens faced by the middle class and whether such things are only for the ultra-rich.
In this article, we have decided to reveal the “secrets” of the world´s wealthiest families and how their legal advisers structure their holdings.
I have called this the 5-step walk to total freedom. Some people call this the Five Flag theory, others call it the ultimate Plan B. In essence, the concept is quite simple and understanding it will save you tens of thousands in consultancy fees.
Indeed, there is only one way to legally escape creditors, governments, socialist policies, and restrictions on your freedom forever for you and your children. This is it and Mundo calls it Forever Free.
Before explaining this journey is important to note that some of the world´s wealthiest families such as the Rothschilds and the Rockefellers have been using structures similar to these for nearly 100 years, and it is really the existence of such structures that have ensured that 80% of the world´s money supply has over generations been concentrated in 1% of the world´s population.
Since our personal belief is that society should increase the wealth and power of the middle class, we would like to be able to share this with our readers.
Before exploring the architectural structuring of a Family Office, we first need to understand the philosophy behind it. The mistake many advisers make is a failure to understand the ethical, moral, and legal foundations of freedom as a social construction. In other words, what is freedom and why do we need it?
The philosophy of freedom
It is not coincidental that the study of philosophy and ancient history has all but been eliminated from the classroom by most major governments. No one ever asks the question of why we even need governments and taxation, as if this was a belief so anchored in our psyche as to not need analysis. In a way, it is similar to the belief in God that the Christian world had in the dark ages. It was considered heresy to even question the existence of a benevolent almighty god, in the same way, today it is heresy to even question the need for a benevolent big brother state. However, it was not always so.
Arguably the first society to place a high value on individual freedom and rights were the Greeks. Socrates was one of the first philosophers to insist on questioning institutions such as the state, religion, and even armies and wars because he emphasized the value of being free from all institutions. Of course, we know he was voluntarily killed for his beliefs, but his death symbolized to the Greeks that freedom in all its aspects (intellectual, physical, financial, moral, etc.) was worth dying for.
The Greeks were, indeed, one of the only, if not the only, ancient civilization that believed in individual liberties and valued freedom.
A second philosophy, represented by the Persians and indeed all other ancient civilizations, was the concept of a big brother government where the ruler was supreme and everyone else were slaves. According to this philosophy, big brother looks after his citizens and his rule is absolute. It is society, the empire (big brother), who exists with the purpose of looking after its people.
In modern society, big brother has come to dominate our political and social way of thinking almost to the complete exclusion of individual liberties.
In modern history, movements like national socialism (the Nazis) argued that the state was supreme, and the society was simply a beehive designed to serve the greater social good of the state. Hitler argued for the elimination of all liberties and rights and indeed the eventual elimination of the family as an institution opposed to the expansion of state control. Similar philosophies of complete state control were propounded by the Marxists and the soviet state.
Today we can see the development of these ways of thinking almost to the exclusion of all others. The power of the state can be seen recently with the complete control by most governments in the Covid “pandemics”.
No one questions the right of governments to place their citizens under house arrest anymore, the right to restrict their movement and indeed imprison and fine them for going to the beach.
But the above is only the conclusion to the development of social control which has been growing like cancer for the last 50 years. Today no one questions high taxation, the power of governments to track and survey their citizens, the control of the education and health systems, and the advent of ever-increasing confiscation of wealth.
If we objectively look at the world, the traditional Greek concept of individual freedom no longer exists.
South Africa, for example, is controlled by the ANC, which started and remains a Marxist organization whose very constitution is dedicated to spreading universal communism and removing property. Indeed, true to its purpose and very much like Mugabi, these soviet influenced and trained operatives are stripping wealthy people in South Africa by confiscation and murder. Similar forces run throughout much of the African continent, which is now being more and more controlled by the communist party of China with its imperialist “belt and road policies”.
In Venezuela, the cancer of communism has ravaged the country to the extent that an uneducated former bus driver is now a self-proclaimed king of the people, with individual rights and liberties being only a distant memory that´s been left far behind in the past. However, only 30 years ago or so Venezuela was the financial powerhouse of Latin America. It should be remembered that the decay of Venezuela started with the idea that wealth should be confiscated from the rich and distributed to the poor. This simple and incorrect idea is what infects most of the world today, even more than the coronavirus does.
Indeed, the disease of communism and its opposite feudalism has spread like a fire throughout all Latin America, where we see high taxation, riots, and social unrest and the philosophy that the government should somehow help fix things. It is only a matter of time when other western countries decay into copies of Venezuela. Latin America has become a place where the communists steal from the rich feudal lords who themselves had stolen from the people, perpetuating an ever-increasing cycle of theft, poverty, and social decay.
About Europe, we all know it has become communist in all but the name. Taxation both explicit and hidden has become so high that it is impossible to run a business in most European countries and the stated aim of Europe is to eliminate cash and place everyone on a fixed income. It is clear that the Soviet idea of a universal (low) wage and state control has won without a single shot being fired. The ever-increasing implementation of death duties, inheritance taxes, and wealth taxes combined with creeping property taxes determine the end of a wealthy and middle class in Europe, and the ultimate consummation of the big brother slave state.
The United States too is on the verge of a civil war with most of the population in poverty and it wants to support universal income and socialist taxation, with a country completely divided by social, class, religious, and racial characteristics to such an extent that it is no longer safe to even walk the streets.
In this, we are seeing ever increasing destruction of individualism and liberty, and these tendencies are increasing in a snowball effect.
Ayn Rand -back to the Greeks
One of the few (arguably the only) modern philosophers to take a close look at personal freedom was Ayn Rand, whose seminal work, Atlas Shrugged, has influenced generations of businessmen, family offices and entrepreneurs.
Ayn Rand simply argued that, in essence, individual freedom to earn the fruits of one´s labor free of government and social control is a fundamental human right.
The individual, she argued, is the most important and significant unit of society and his/her rights to property, self-determination, and self-governance are paramount.
A country is after all an arbitrary agreement, often not even put into law that a set of individuals living and being born in a particular territory acting in a certain way. Why, she asks, should the fact that I am born somewhere and live somewhere means that I have to give away 50% or more of everything I make to a government who distributes it to other people living in the same piece of territory. The fact that some people take away my hard-earned goods without any reason is nothing less than theft.
In Atlas Shrugged, almost ina prophetic way, she predicted the collapse of American society through high taxation, surveillance, confiscation, and socialism. In Atlas Shrugged the heroes of the book being the entrepreneurs, thinkers, intellectuals, and inventors who make society great, simply leave to create their own island paradise based on the gold standard and new technologies and, with their leaving, America collapses.
At the risk of not doing justice to the depth and complexity of Ayn Rand´s thought, her central thesis is that the state-democracy-, empires, governments, and essentially countries are pure social concepts created to control people and make them into slaves.
The free individual owed no allegiance to anyone except their own fundamental human creative power. The individual has the right to create, to run business, to invent, and to exchange with other individuals without the need of governments.
In essence, she says that we all have the right and power to become our own self-determining government.
Her philosophy has been taken up by enthusiast of Blockchainwho can now create decentralized exchange systems whereby central governments are no longer necessary.
However, the ability and power to remove as far as possible the powers of governments and states over individuals is not only a philosophical concept, it is also a legal and structural concept which can be done to protect an individual and family wealth and structure their freedoms forever.
The concept is to create an eternal structure which functions in many ways outside the power or control of any government and therefore grows organically and perpetually to protect and enhance family wealth. In a sense, a wealthy individual or a family take back their own self determination and become free -they exit the state of being a slave or the slave state.
The legal mechanisms for the structuring of freedom have been developed for the last six hundred years to protect wealthy families and individuals.
The structure has been called a family office, or The Five Flag theory.
Having explained the why behind the theory we will now explain the how.
Baron Rothschild and the 5-flag theory, the philosophical concept behind a family office
Whilst the real history behind what we outline here is very much obscured by the mists of time and legend, it is fair to say that the concept of an eternal family office was developed, if not created, by BaronRothschild.
The Rothschilds were in the very dangerous business of lending to kings and knew the capricious and arbitrary powers of kings. Lending a king money was especially dangerous if king lost a war as the natural response of kings was to put the lender to death at worst or confiscate his wealth. So, BaronRothschild developed a system based on a series of structures (corporations and trusts) spread across 5 jurisdictions.
Some say he did this because of the biblical concept of the hand with five fingers signifying the power of god, others say that he chose five because he had five sons, each of whom directed his part of the business from a different jurisdiction, but whatever the case, this became later to be copied by many of the world’s wealthiest families.
You see at that time, and it may be said even now, corporations (e.g. the east India trading company) were even more powerful in many cases than governments and had more money. So, by creating a series of corporations, Rothschilds became not only free of government control but over time they accumulated more wealth than many governments.
You see a trust and corporation can essentially function legally as their own sovereign entities or governments as the legal mechanisms that determine their functioning are the same as the legal mechanisms that drive governments.
The legal structures created and developed by the Rothschilds arguably made them the most powerful family office in the entire world.
Whist many writers call the five-flag theory a theory of minimizing taxes by perpetual traveling, nothing could be further from the truth. The proper structuring of a family office using the five flag theory means that the family wealth is protected intergenerationally and forever, and we will explain this further down.
Further, whilst many commentators and writers say that since the OECD initiatives utilizing offshore structures is no longer viable, again nothing could be further from the truth. The current global financial collapse and encroachment on liberties by many states have ironically created huge opportunities for families to plan their family offices in jurisdictions which welcome family wealth optimization.
Not only is what we are about to tell you perfectly legal, but it is essentially so simple that implementing this strategy will save you tens of thousands in consultancy fees.
So now let us take a quick walk to freedom, at Mundo we call this: the 5 steps to perpetual freedom or “Forever Free “
The Forever Free strategy is not about doing anything illegal or indeed hiding, it is designed to simply walk away from all the restrictions and obligations which empires place on their slave citizens. How is this done, well, the answer is simple: by getting on a very comfortable first-class flight away from high tax socialist countries and letting them rot in their own moral and social decay. Yes, it´s as simple as that, and we explain how.
Step 1: obtain a second citizenship in a zero-tax country
Whilst the United States is the only country which at present taxes its citizens on their worldwide income whether or not they live in the land of the free, the OECD has already indicated that it
wishes to control its citizens by receiving information under CRS about them even if they live somewhere else, this is really the first stage to enacting a similar taxation system to the United States.
Further OECD are increasingly creating more and more complex tax residency rules basically trying to tax their citizens even if they don’t live in Europe. This means that if you have a house which they define as a place of residency, a company you control, or any other ties to Europe which they define, they can tax you even if you and your family live somewhere else. Further, if you are defined as having such substantial ties you will be caught in the tax net for all the horrible taxes they have enacted including wealth tax (taxes on how much money you have) inheritance and death taxes (taxes on what you leave to your children), investment taxes(taxes on income from investments on which you already have paid tax), etc.
Now the tax police in many European countries have already compiled a special list of high net worth individuals whom they are targeting so they can squeeze more dollars out of them. The OECD member nations starting with the European Union have enacted a range of special legislation to be able to arrest the bank accounts of their citizens and indeed have the power to withhold the issue of passports for unpaid taxes or those under investigation(whatever that may mean ).
If you obtain a second passport in a country that has alow tax rate, then you have the opportunity to escape the OECD net not just for now, but for future generations as well.
Today, with Covid restrictions adding to this, the states can and will restrict your freedom in numerous ways including placing you under house arrest. The only way to avoid this is by obtaining a second passport so you have a choice. Today a second third or even fourth passport are more necessary than a car or yacht since it cannot be taken away and is the only thing that gives you a right to live in a country.
In the world there are only 9 true economic citizenships -these are the Caribbean islands (St Kitts, Grenada, Dominica, St Lucia, Antigua), Vanuatu, Montenegro, Malta, Turkey.
Of those, Vanuatu is the only economic citizenship nation in the world to have no personal income tax whatsoever, no gift tax, no wealth tax, no death duties, and no corporate profit tax. A Vanuatu citizen /tax resident can make billions of dollars in personal investments and pay nothing to Vanuatu ever.
Having a second citizenship is the first step in establishing a family office because it provides the family members with a jurisdiction where they can hold bank accounts as citizens. In many cases families often have multiple citizenships to diversify risk.
Step 2: obtain a second residency
Now it may not be a surprise that having a second citizenship is of little benefit for tax planning purposes unless you combine it with a tax residency.
However, these days a tax residency must be a place that is genuinely recognized by the tax authorities of the country in which you reside as an actual tax residency.
The challenge is to choose a tax residency in a country that does not tax foreign-sourced income and in which you and your family can comfortably live and do business at least in a Plan B situation. There are not many of these left.
Whilst countries like Portugal give you tax exemptions on worldwide income for ten years in some cases, and Montenegro and Cyprus can offer interesting tax residency options, the places in Europe, where families can optimize their tax residency, are becoming fewer.
Having tax residency in most of Europe is like playing with fire due to what we may call the socialist (or perhaps communist/dictatorial) leanings of the Europeans. The Europeans are unfortunately back in the middle ages where they like to freeze everything form free speech to bank accounts.
Whist we could write a whole paper on tax residency options, one of my favorites is Panama. Panama does not tax worldwide income and permits tax residency based on a test involving your connections to the country such as an operating business. Residency is quite easy to acquire and Panamanians are pro-business. A Panamanian tax residency allows you to easily open Panamanian bank accounts and brokerage accounts and receive income from investments tax-free.
There are however still many other excellent options that are useful for a family either as Plan B or as an actual living destination. These include Singapore, Switzerland, Hungary, Malta, Dubai, Greece, and even Italy. Ironically, more and more countries are attracting wealthy families with interesting tax residency options.
Step 3: the dynasty trust
The dynasty trust is a carefully crafted trust deed that protects you and your children and their children forever from attack by creditors of any kind. This is really the Rolls Royce of asset protection and means that if you become bankrupt or get attacked by any type of creditor (including spouses, inheritance claims, bankruptcy claims, even tax claims) the trust will protect you and your family.
One of the best trust jurisdictions is Nevis. The small island of Nevis has enacted a comprehensive trust regime considered by most experts to be ranked as the top jurisdiction, even better than the Cook Islands. The trust pays no tax of any kind on income coming into Nevis and does not recognize foreign claims for inheritance, gift, income, wealth, or any kind of tax.
More complex family structures can be established in certain parts of Europe and, in some cases, the advantages of offshore jurisdictions like Nevis can be combined with these with the correct planning.
The trust is actually the essence and foundation of family office planning.
Since all assets are owned by the trust, no claim against you personally is valid against the trust. This confirms the famous saying of JD Rockefeller “control everything, own nothing”.
The trust should then own your holding companies and operating companies that are your business assets and passive income.
The Nevis trust can also be combined with onshore trusts (notably Madeira /Hungary) for European compliant asset protection which takes advantage of relevant double taxation treaties.
Step 4: the operating company
The OECD via the CRS (common reporting standard) classifies an operating company as one having 50% or more of its funds in active business. An operating company reports back to its place of incorporation and not to the place where its UBO is resident.
In order to take advantage of this, banks require the company to show substance, which means an office, an actual business, and some staff.
If an operating company incorporates ina low tax or zero tax regime for its worldwide profit this allows tax optimization.
There are many regimes to attract operating companies including Ireland, Dubai, Shanghai Free economic Zone, Uruguay Free Economic Zone, and Panama. Of these, one of my favorites is the Panama free zone because of the simplicity of the regime. There is simply no tax on worldwide income, no import and export taxes, and very minimal requirements to obtain the free zone certificate (one staff and an office).
The Panama Free zone regime allows for almost any business set up including services and crypto business without any red tape or bureaucracy and is ideal for trade with China.
Indeed, with new bilateral agreements between China and Panama, the free zone can become the central office for a Chinese investor to trade with China and the rest of the world. Panamanian banks are now beginning to open accounts in Yuan.
Step 5: create a hedge fund
Every family office needs to have a permanent set of dedicated financial advisors to assist the family to take advantage of co-investment opportunities with other family offices and also to establish a strategy of hedging against risk by a combination of diversification into various types of assets.
Families who have high wealth can create their own hedge funds which invest in various asset classes in diversified strategic locations. These can include IPO, gold and precious metals, crypto funds, and distressed real estate opportunities.
For families who have wealth over 2 million, establishing their own hedge fund makes sense, however even with lower wealth the strategy can be achieved simply by using an advisor to your existing trust structure.
Total freedom
By properly structuring your residency and your second citizenship, establishing a trust which owns an operating company you have now established a structure that will last generations and protect you and your children and their children forever.
The operating company will the establish various bank accounts diversifying its holdings into passive investment income such as bonds, real state and shares, and active business operations such as trade. The operating company will lend money to its associated holdings in order to optimize its tax position and make use of double taxation treaties via its holdings in operating with other countries.
The operating company will set up different branches, holdings, or subsidiaries in various countries to maximize its trading opportunities but at all times the structure itself will be used in the same way that international companies such as Apple and Google or international families structure their affairs.
You and your children will become global citizens unaffected by the tides and turns of outrageous fortune, financial crises, or attacks by creditors because in the end, you will become legally and forever free of all these things.
Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice or recommendations. Investing in financial products or cryptocurrencies involves risks, and you should be aware of the potential risks involved before investing. The content on this website is not intended to be a solicitation or offer to buy or sell any financial products or services. The information provided does not take into account your specific investment objectives, financial situation, or needs, and should not be relied upon as a substitute for professional financial advice. You should seek independent advice from a financial advisor or other professionals before making any investment decisions. Please be aware that the legal status of cryptocurrencies and other financial products may vary in different jurisdictions and may be subject to regulation. It is your responsibility to ensure compliance with any relevant laws and regulations governing the sale and marketing of financial products and services in your jurisdiction.
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