The past decade has seen the growth of the family office as a separate legal entity to manage the assets of families, coordinate multi-generational planning and philanthropic activities and otherwise act as stewards for family assets. Hence, it is logical that when the family members use private aircraft for business and personal travel, the family office is often involved. Aircrafts are expensive assets to acquire and operate and careful planning on ownership and operation can result in significant tax savings or deferment as well as avoid regulatory and liability pitfalls.
The optimal structure will differ depending on a number of factors, including expected usage, mix of business versus personal or other uses, and the structure of the family assets and income stream. In addition, the "optimal" structure must balance objectives that may conflict with one another.
The family office plays a key role in the initial planning and ongoing accounting for the aircraft.
There are scenarios where the family office may be able to own and operate the aircraft directly, such as when the family office entity actually owns significant assets and has significant income. Similarly, the structure may work where the aircraft is "operated" by a charter manager or in the case of fractional shares. However, in many cases, the family office may not be the "best" entity to own the aircraft for several reasons. There are the strict FAA rules about cost-reimbursement for aircraft that are privately operated. Further, from a tax perspective, the family may not have sufficient income or operations to justify the use of a private aircraft. Hence, from a tax planning perspective, it may not be in a position to benefit from depreciation of the aircraft.
For the family office, a good professional aircraft management company can be invaluable in hiring pilots, overseeing maintenance, and arranging hangar and insurance coverage. In addition, many managers are also FAA-certificated air taxi operators. As such, they can fly the aircraft in charter for third parties, help generate revenue to defray some of the fixed costs of owning and operating the aircraft, and be beneficial for tax planning purposes. However, there are costs associated with using a manager, and some families may not want their aircraft used by third parties.
While you can rely on advisors for planning, having someone within the family office who is familiar with the regulatory and tax issues particular to aviation – and who understands the rationale behind the structuring – is invaluable. For example, it is not uncommon that as time goes on, employees may seek shortcuts in what information is collected or cease making intracompany payments to simplify procedures. Having someone periodically attend business aviation conferences, as well as monitoring news and client updates put out by law firms and advisors, can also be helpful.
Holland & Knight has one of the largest aviation practices in the world, with aviation practitioners in London, New York, Miami, San Francisco, Los Angeles and Washington, D.C., and attorneys with decades of experience in business aviation transactions. In addition, our aviation practitioners and Private Wealth Services Group work with a number of Forbes-ranked families, individuals and private companies, with a number of our aviation and private wealth partners named as leading advisors in the Chambers High Net Worth 2018 guide. We have a multi-disciplinary team that can help you address tax, transactional, regulatory and cross-border issues. For more information about developing and implementing your private aviation objectives, contact the authors.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
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