FOXCloud: What’s on the Mind of FOX Members – January 2023

The following were the most talked about topics within the networks on FOXChat in January 2023:

 

Aircraft Mechanic

We are considering purchasing a Global 6000 and have been advised that we should hire our own mechanic for the aircraft. We have also heard separately that we do not need to hire a mechanic. Does anyone have any experience/advice in this area? (Source: FOPeer)

  • Our (now retired) aviation manager agrees with this sentiment. This type of aircraft justifies a mechanic.
  • We have owned a number of planes over the past 15 years and have never hired our own mechanic.
  • We don't have a mechanic hired, but we do have a director of maintenance. There are too many inspections and monthly tasks to stay on top of if you're not familiar with the servicing, scheduled replacements, cleanings, etc. They're employed by the management company, and it's passed through to us as jet owner.
  • We had a mechanic full time, who was also our co-pilot. It worked well for our one Citation X due to his unique qualifications. I do not know how common this is, but if you would like I can connect you with our aircraft manager/pilot (now retired). We no longer have the aircraft, but that is how we handled it for many years, he could give you his perspective on that.
  • We have owned several aircraft over the years and have never hired our own mechanic. Bombardier should be able to provide all of the service you need. Let me know if you need more guidance.
  • We own a Global 6000 and have a full-time Director of Maintenance on our team that only services our plane. He oversees any large maintenance projects but also "turns his own wrenches" on smaller issues. We consider him just as important as any of our pilots. If you can afford a Global 6000 you can't afford to NOT have your own DOM. If you find a good one, he would pay for himself.

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Employee Recognition Program

We are currently reviewing our employee milestone award program to recognize service time/achievements at the company i.e. 5, 10, 15, etc. We've held internal discussions to learn that cash or equivalents is much preferred to gifts of tangible items and are very interested in what your office has in place or are currently considering in the future. We are using the following questions to steer our thought process:

Does your office have a service award program? If so, what is:

  • The frequency
  • What types are awards are given?
  • Is the monetary value of the reward fixed or variable? (flat amount v % of salary)

Are there other milestones/achievements rewarded? If so, how are they rewarded?

  • Certification
  • Degrees
  • Other

How many employees are in your organization? (Source: FOPeer)

  • We have fixed monetary tenure awards for 10 & 20 years. No other milestones are rewarded. We have ≈ 25 employees.
  • We have Tenure Awards currently for 5 and 10 years (office is < 15 years old). We wanted to gift "experiences" so we first worked with a company called BlueBoard and gave people 5K at 5 years and then 10K at 10 years toward a trip/experience. We have now migrated away from BlueBoard and use a travel agency close to the family office to help people book their trips. We gross up the taxes once the employee takes their trip. We have > 50 employees, but I would guestimate only 10-12 have reached the > 5 year award level.

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Florida Hurricane Insurance

We have been receiving quotes for hurricane insurance for our Key Biscayne property. It appears rates have doubled in the last 12 months. We are thinking of setting up a self-insurance company, or small captive insurance company for the family assets. Does anyone have a suggestion on how to begin, or a firm that could assist in developing this solution? (Source: FOPeer)

  • Your key issue will be where and at what cost you will obtain excess coverage for your entity. I would be skeptical.
  • I would suggest Scott Teller at Chubb for some perspective on their experience with captives and family offices. They apparently do the insurance side of it, but you may want to get some background. I have looked at these over the years, and they seem interesting but not sure that the "care and feeding" won’t outweigh the longer term costs. It might be worth having an insurance panel broadly as the coverage is shifting and loss of homeowners is often impacting a loss of umbrella liability etc.

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Health Insurance for SFOs

Our family office needs to provide health insurance benefits for employees and family members in the United States. What do independent single family offices do to provide health insurance benefits for both family members and also for employees of the family office? Do you use the same approach for both groups or do you handle each group differently? (Source: FOPeer)

  • Our family office created one single group (under 10) including family members (as employees) and family office staff. I would be happy to discuss or connect you with our insurance broker.
  • We cover office (8 people), household staff (~12 people) and family members (7). Our broker got us a policy that allowed us to insure family members by adding them to the board of directors. They are not employees. We are in Florida.
  • We treat them the same. We did this for business and strategic reasons. Keeping it simple also played a role. I am happy to discuss further with you one on one. You may have some ideas we did not consider. Keep in mind there is Section 125 Non-discrimination testing to consider. Key employees or officers have rules that will impact if some of the benefits can be withheld pre-tax.

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Issuing 1099s From Single-Member LLCs

We are reviewing our list of entities that issue 1099's, a few of which are SMLLC's. We have other SMLLC's that have never issued 1099's even though there was qualifying activity. I'd appreciate insight on how you determine which of your SMLLC's are required to file. What are the exceptions? (Source: FOPeer)

  • When we reviewed this topic, we found that the estate attorneys who were also a CPA had the best handle on the intricacies of this topic. The accounting team’s guidance was broader and generally correct. The issue was the exceptions and definitions that drive those exceptions. After reviewing with the attorney, make sure to discuss with your accountants so you can formulate a full decision. Feel free to reach out to me directly if you want to discuss this further.

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NetJets Alternatives

We are a NetJets fractional share owner. While we were previously pleased with their service, we recently feel that it has not been up to par. Can anyone recommend another fractional share vendor that they are happy with? Particularly one with a newer fleet and that does not frequently use third party planes. (Source: FOPeer)

  • We have used AIRSHARE for the last few years and have been very pleased with the fleet and service. They own all their fleet.
  • We have been using Planesense for the Pilatus PC12 and the PC24 jet. We have been with them for many years and have been pleased. In the past year we have seen much more disruption with our itineraries and a lot less consistency.
  • We left NetJets some years ago but returned after seeing limitations of the other. Overall, better long term service seems unlikely to us. Recent issues have been noticed, including use of Executive Jet charters, but we see them as minor in nature.
  • This doesn't directly answer your question, but there is a company called Aviation Portfolio (aviationportfolio.com) that assists clients in getting the most out of their fractional share vendor relationships. It may be worth talking to them.

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Payroll Service Providers

We have recreational properties (caretakers), foundation staff, household staff and yacht crew that are on salary. We currently use Paychex and it's very expensive for what we're doing. Some of the properties/entities have one employee, on salary and nothing special added like retirement or health benefits. I'm interested to hear what others use for payroll service providers. I'm evaluating "Gusto" and would love to hear feedback. (Source: FOPeer)

  • We use Proliant (Connor Vining) and have been very pleased.
  • We haven't found a single source provider. Of course, we have only five employees, three wage-paying entities. For the property management company with three employees, we use Gusto, and have found them perfectly adequate. That runs about $60/month. They also run the single-employee foundation payroll, a little less per month. Both are set up to run a monthly payroll and also accommodate deductions for a Simple IRA for the management company [which we handle separately at Schwab] and the 401K for the foundation employee [also at Schwab and for which we have a separate 3rd party advisor to do the annual tax filings.] We use HomePay for the single housekeeper, and that is also fine, but costs more than either of the other entities, but the housekeeper is paid more frequently and with less regularity. Soup to nuts, the payrolls cost about $200 per month, all entities included, with the TPA for the 401K a separate expense.

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Private Foundation

Our family is considering establishing a private foundation. Any suggestions for an advisor on setting up the legal structure and for obtaining advice on proper maintenance etc.? (Source: FOPeer)

  • All of the following comments are intended for educational purposes and should not be relied on as "legal advice." When considering the different formats for accomplishing charitable goals, a private foundation can work well. The upfront cost for establishing it is more than if you:
    1. make gifts to public charities to be used for particular programs,
    2. create within an already established community foundation a fund that requires some of the fund annually to be available to the community foundation board to use and make gifts and family members are designated to choose charities (other than the community foundation) to which distributions will be made (also an established way of accomplishing charitable goals)*, and
    3. the newer kid on the block, so to speak, the Donor Advised Fund.

    There are reporting requirements to the IRS and, as a result of the IRS finding in the 1960's that some people were operating charities with which they were affiliated in ways that did not seem to the IRS to be in the spirit of what the Internal Revenue Code contemplated for charities, we now have public charities, private operating foundations, and private foundations and there is a slew of rules and regulations for private foundations with which those managing the private foundation must comply or there will be penalties that can be rather steep.
     
    Just keep in mind that when a gift is made to a public charity or to a Community Foundation, those who like to focus on the giving part and not the compliance part may enjoy the experience more than if they are the managers. For those who enjoy the management/compliance part, a private foundation is grand.
     
    A private foundation does not last forever and part of the rules that govern it are those requiring a certain amount of the corpus to be distributed each year. (These rules do not apply to public charities, community foundations, and donor advised funds.) Plan though for the future, worst case scenario, that those in charge of the private foundation would like to close it down and distribute everything to charities.
     
    Add language to the governing documents that allows them to choose the public charities to which distributions will be made or, and I've seen this happen, later generations in a family not only have different charitable ideas, but live in different parts of the country, and each wants its own private foundation; without language in the governing document that allows the Board to split the private foundation into two private foundations, for example, a visit to court and a court order might be needed. (And the new private foundation likely will need to be approved by the IRS before any distributions are made to it.)
     
    *Each community foundation has requirements for managing the funds there, which include making a certain amount each year available to the Board to distribute. Community Foundations can have the flexibility to make an agreement with the donors that addresses how family members will be chosen (usually by them while alive and then by others designated by them) to be in the Committee that makes recommendations each year to the Community Foundation for distributions to charities, if certain charitable interests are originally designated and, over the time, the Committee wishes to focus on other charitable efforts -- either temporarily or permanently -- language can be in the agreement to this effect (for example, if the Committee members decide that they want to focus on relief efforts to charities that are assisting Ukrainian residents for 2022 and 2023, the agreement can provide for the flexibility to do so), and, if in the future, the grandchildren and great grandchildren who are the Committee members (or even earlier than this) decide they would like to end the fund and pay it out to named public charities, the agreement can provide for this.
     
    Consider looking into all options and talk to one or more community foundations in the community to see how its Board manages individual funds set up by donors. I know Foundation Source provides a comparison chart that focuses on why a private foundation is better than a donor advised fund.
     
    If you decide on a private foundation, make sure that it is funded with enough corpus (without needing to add additional corpus later on unless you want to direct assets to it at death) so that family members can make significant charitable gifts over as long a period of time as you want it to exist.

Shipping Wine

I would like to know if anyone has suggestions/best practices on how to gift wine to someone and ship it to the recipient (either in-state or out-of-state). Do you use a company to pick it up at the residence and ship it, or drop it off somewhere? Also, are there any tax implications to consider depending on the bottle and/or whether in-state or out-of-state recipient? (Source: FOPeer)

  • Liquor laws vary between states so it is highly dependent on where you are and where the wine is going. On the west coast (California and surrounding states) there are wine shipping vendors that will handle this for you. vinevault.com is one that have a national reach. I have received wine from them. They advertise they specialize in moving people’s cellars but are happy to quote small orders. Many wineries use intermediaries these days to ship their wine to customers. A handful of these do consumer.
     
    There are companies that do corporate wine gifting like winestyr.com in Chicago. They usually have their own wineries they deal with but have an array of wine.
     
    To stay clear of any laws locally and at the destination, it is easiest to buy from the vineyard and have them ship to the recipient. The alternate option is to buy through a wine retailer/vendor and have them ship. Personally, I will search for a local wine store in the area of the gift recipient. I will then contact them to order the wine and have it shipped or picked up by the recipient. For instance, I have used Total Wine in California and Florida to purchase online even though I live in another state. Total Wine will do local delivery for some orders at some stores. If you call the local store directly, they are very helpful in working through this.
     
    Professionally shipping wine will require you to have it signed for, in person by someone 21 years old. So offices and businesses addresses are easier to receive than residences.
     
    If you are talking international, Mailboxes Etc has a wine import business. You can drop off wine at a Mailboxes Etc in France and they will handle the importation to the US with duties, tariffs etc. They then ship FedEx or UPS to your local destination. I have had liquor refused at a UPS Store / FedEx office when I asked to have it packed and shipped. Usually shipping your own wine is easy in a wine region like Napa, Santa Barbara or Sonoma. But that is likely due to state and local tax laws. I do know people who have packed, labeled and dropped off boxes without question at their local store. You can search online for wine shipper packaging. Uline and other websites sell the boxes for shipping.
     
    Remember wine technically does not travel well. So if the gift is intended for a specific event or date, ship it at least 2 weeks early. And as with other fragile items the faster you ship it the safer it will be. Overnight or 2-day boxes always arrive in better condition than ground or express saver.

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Tax Estimates for Private Equity

We participate in a number of private equity investments and we struggle to obtain timely tax estimates from them before the Q4 tax payment is due each year. We are typically able to get a few K-1 estimates from some firms and we rely on quarterly statements that might show "realized" gains on them. However, we always have a large number of missing statements or K-1 estimates to be able to calculate a meaningful estimate. I'm curious if anyone has a better system or a way to go about estimating taxable income each year until the K-1s are eventually received months after the tax is due? (Source: FOPeer)

  • For the 2021 private equity tax estimates, we looked at the portfolio manager distributions and for the portfolio managers that classified the distributions as distributions of interest/dividend income or capital gains vs. return of capital, we incorporated this into the tax estimates. Because of this, our 2021 tax estimates were closer to actuals that we have experienced. Does anyone have a different strategy for tax estimates for private equity that they are willing to share?
  • We do dig deeper into our LPs entities making sure that we are only picking up the capital gains and portfolio income. We have a couple questions, if anyone will share:
    • How do others handle situations where there is an overall ordinary loss but a capital gain. For our passive shareholders, they can't take losses (unless there is a carryforward of passive income) so they are taxed on the capital gains. Thus, we distribute taxes to cover the worst case scenario which would not give any credit for passive losses and pay tax just on capital gains (Note: Our parent entities are pass through and we still have operating businesses: Sub-S and LLC). How do others handle shareholders that are passive vs active?
    • Estimate tax payments (specifically in CA), how does the group handle quarterly tax distributions if the income/losses fluctuate from beginning to end of the year? If overpayments are made, do they adjust the next year taxes? Do the shareholders use the "annualized income approach" to avoid penalties if projections are higher later in the year?

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Wine Cellar Inventory Organization

For those familiar with CellarTracker for wine cellar inventory, have you found a particular method of organizing the physical order of the wine that works best? We are going to be implementing CellarTracker in a new wine cellar for a family member and are trying to decide whether to organize the wine in order by region, vintage, alphabetically, etc. Otherwise, do you just place them physically at random and use the system to locate the bottle you are looking for? Any suggestions would be greatly appreciated. (Source: FOPeer)

  • I think the answer is "it depends." Will you have multiple storage locations? Is the principal going to want to browse in the Cellar or just ask staff to get bottles from a list (online or printed)? If you are in one location, my suggestion would be to segregate by type (white/rose; sparkling; red; fortified), next by country, then by region and finally by sub-region. Within sub-regions, if more than one type of grape predominates, then I would further break it down by varietal. Some people like to break it down by AVA as well.
  • There is only one location. The principal would be browsing the cellar and selecting bottles personally. So, I think it would be beneficial, like you said, to organize the cellar by type, country, region on down to sub-region/varietal and have some sort of organizational system such as that rather than random placement.

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Additional Topics of Interest Seeking Peer Recommendations, Feedback, or Insights

(Your comments can be submitted as a reply to the message on FOXChat or emailed to networks@familyoffice.com for FOX to post and share anonymously on your behalf.)

Alternative Investments Tracking Software

We are checking to see if anyone has experience with software designed to track capital calls, returns, etc., for a family's portfolio of alternative investments. We would prefer to use existing software rather than start from scratch. (Source: ADVPeer)

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Art Conservation

What are best practices regarding art conservation? By 'Art', I mean primarily paintings, pictures, and sculptures. Do you have any annual tasks or guidelines that you could share? (Source: FOPeer)

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Centralizing Vehicle Management

Would anyone be willing to share their experience centralizing individual vehicle management/admin and moving to a fleet model? (Source: FOPeer)

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Florida Medical Insurance Broker

We are looking to secure medical insurance coverage in the state of Florida. Does anyone have a recommendation for a contact in Florida? (Source: ADVPeer)

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Foundation Moderator Recommendations

We are looking for recommendations for a moderator to help guide us through the process of determining causes and setting goals for our growing foundation. (Source: FOPeer)

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Hedging Fuel Costs for Personal Jet

Any suggestions or best practices in hedging fuel costs for personal / private jets? (Source: ADVPeer)

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Housekeeping Service

We are seeking an experienced, reliable, confidential individual housekeeper or housekeeping team to clean a private single-family residence once a week (approximately 6-8 hours) at a home in California. We will require a W-9 and an NDA. Any suggestions on where we could find someone? (Source: FOPeer)

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Key Employee Long-Term Contracts

I am wondering if any other offices have used a specific attorney, or firm, to create long-term employment agreements with Key Employees? Looking at two Key Employee's. It is a missing part of our broader estate planning conversation - we do have an internal GC. (Source: FOPeer)

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Lifecycle Concierge Services

Can anyone recommend any smaller boutique firms who specialize in Lifestyle Management/Concierge services. I am also looking for any recommendations for dedicated/prominent service teams, similar to the American Express Concierge Program, those with access 24x7x365. (Source: FOPeer)

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Mediator Hiring Questions

We are seeking a mediator to both help resolve a current family conflict and help us establish an ongoing process of learning and conflict tools to help our family resolve future conflict productively. We have several candidates and now seek to effectively evaluate them for the job. Does anyone have a list of questions or diligence tasks or both they can share? While basic questions are important, we are looking for something beyond "what are your credentials" or "tell us about a successful engagement." Effective questions for us might be "what tools do you use in your practice that we could learn to use on our own in the future" or "how do you work with families after a conflict to build their resiliency as a family system?". (Source: FOPeer)

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Outsourced Accounting

I am looking for recommendations for outsourced accounting options. In addition to traditional staff accountant function, the outsourced provider could pick up tax, assurance and valuation work for the family (if it is a good fit). We are a small SFO. (Source: FOPeer)

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Residence Cost Control and Vendor Relationships

How are offices managing the expenses and vendor relationships for work performed at the family's residences? Are the expenses and relationship managed by the house manager or is the office involved in procurement of services, negotiation of fees, invoice approvals, etc.? (Source: FOPeer)

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Small Payroll Software Recommendations

To date, we have been using a third-party, independent bill payment service that also interacts with ADP for a small payroll roster. We would like to evaluate bringing the function "in-house" and would like to know what software and/or platforms other family offices are using to facilitate bill payment and payroll. (Source: ADVPeer)

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Tax Shelters

Does anyone have recommendation of firms that high-net-worth families use to provide assistance obtaining tax shelters for U.S. Investments? We are trying to understand how high net worth family offices source and underwrite tax shelters. Internal staff? Any insights are appreciated. (Source: ADVPeer)

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Member Referrals Requested:

This section includes service providers that members have recommended and/or are looking to hear about other members’ experiences.

  • Accounting Firm: Steven Twersky, CPA (FOPeer)
  • Executive Assistant Recruiting Firm: The Duncan Group (Melba Duncan) (Source: FOPeer)
  • House Manager Search Firm: Louer Staffing (Katie Lewis) (Source: FOPeer)
  • Lease Term Real Estate Tracking: BPM LLP (Brad Kettmann) (Source: ADVPeer)
  • Small Architectural Firm: AMDG Architects (Brenda Lamfers) (Source: FOPeer)
  • Time Management Coach: Magnolia Solutions (Claire Kluever) (Source: FOPeer)

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Software Reviews/Experiences

This section contains software platforms that members have recommended and/or are looking to hear about other members’ experiences.

Accounting Software

I'm looking for recommendations for a family office accounting software that allows multiple approval levels on invoices and ultimately remote approval from owner which generates an electronic signature on checks. It must have a robust reporting and budgeting functionality and online bill pay as well. We currently use Datafaction. Any suggestions? (Source: FOPeer)

  • We recently switched to Sage Intact and while it does have a bill pay module, we found it necessary to use an additional bill pay system to get everything we need for approvals.
  • Sage Intacct meets all of those requirements. There are VARs that partner with Intacct to provide implementation support.

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Cloud-Based or Server-Based Data Storage

Does your organization use cloud storage or an in-house server solution? For either option, what service(s) do you use? How did you decide to use the solution you have, and how do you find its performance in practice? (Source: FOPeer)

  • We use SharePoint. It's very customizable.
  • We transitioned to the cloud in ~2015/2016 and currently are moving over to Azure. Cloud has been much, much better than locally hosted. It made working remotely much much easier and we have experienced much less down time than we experienced with local hosting. We have not had any security or data breaches since going to cloud.
  • We moved to the cloud in 2013 after meeting with Xcentric (aka Right Networks) at a CCH conference. Xcentric has provided all cloud services and we've been very happy. The security is excellent and we've had very little issues over the years. I am happy to have you speak with a team member if interested.

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Key to Network Acronyms

  • ADVPeer: Advisor Peer Community
  • FOPeer: Family Office Peer Community
  • DIN: Direct Investing Network
  • FLN: Family Learning Network
  • HCAP: Human Capital Network
  • LCN: Legal Counsel Network
  • PTC: Private Trust Company Network
  • RGN: Rising Gen Network
  • TODS: Technology Operations & Data Security Network

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