Enjoy a recap of Day 2 of the 2023 Family Office and Wealth Advisor Forum by Erin Hulse, Founder of Deviate Consulting, LLC.

Welcome and Exploring Emerging Themes from 2023 FOX Research

Hilary Leav, Director, Insights & Research, FOX

• The Rising Gen may Surprise Us

• Families say challenges are:
  • Creating productive adults
  • Rising Gen engagement

• Rising Gen challenges are:
  • Navigating Family Dynamics

• Family Office CIOs managed through a highly volatile period

• Investment Performance 2022
  • Returns <5%>
  • S&P <19%>

• Views on Volatility
  • 2022: 93% Expected High Vol
  • 2023: 45% Expect High Vol

• Family office CIOs are confident they can navigate a very different environment
  • Expected 2023 investment performance
    • Over Market Performance 40%
    • At market performance 54%
    • Under market performance 6%

• Advisors expect strong growth to continue

• Advisors plan to accelerate services offerings to SFOs

• Family office executives face change and challenge on many fronts
  • Service offerings – Desire for additional services are increasing
  • Technology – 80% stay integration is important and 48% are still looking for integration
  • Complexity – Complexity is most closely tied to asset levels
  • Cost

• Upcoming Research Studies
  • 2023
    • Family office benchmarking
    • Multi-Gen families
    • Quick look: 2023 Family office talent and compensation update
    • Quick look: Private Trust companies
    • Quick look: Social impact and the family office
  • 2024
    • Family office compensation and benefits
    • Household staff compensation and benefits
    • Global investment survey
    • MFO and wealth advisory study

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2023 Regulatory, Trust, Tax, and Estate Planning Update

Meredith Johnson, Partner, BPM
Jason J. Kohout, Partner, Foley & Lardner LLP
Moderated by Scott Muench, Managing Director, Core Membership, FOX

A panel of experts will review recent and potential income tax, trust, and estate planning laws, regulations, and cases in order to discuss managing key challenges and opportunities in 2023.

Key Planning Numbers

• Exclusion amount is $12,920,000 in 2023
  • Increase of $860,000
  • Use it or lose it

• Annual Exclusion is now $17,000

• Interest Rates
  • July 2023 Section 7520 rate: 4.6%
  • Increased hurdle rate for GRATs and installment sales
  • QPRTS/CRATs look better

• Policy Changes
  • Debt limit deal reached
  • Short term potential changes
    • Very limited
    • Potential regulatory changes (unlikely)
      • Limits to GRATs
      • Make IDGT sales taxable
      • Limit substitutions to grantor trusts
  • Long-term, after 2024, potential changes
    • President’s Greenbook contains changes in rates and common estate planning tools such as grantor trusts
      • Gifts of appreciated property could be recognition events
    • Potential new rules on charitable vehicles such as DAFs and PFs

• New IRS Commissioner: Priorities
  • Danny Werfel appointed as IRS commissioner 3/9/23, 5-year term
    • May be reappointed or removed at will of the President
    • OMB and management consulting background
  • Strategic Operation plan released (IR-2023-71) on 4/6/23
    • Dramatically improve services to help taxpayers meet obligations and receive tax incentives
    • Quickly resolve taxpayer issues when they arise
    • Focus expanded enforcement on taxpayers with complex tax filings to address the tax gap
    • Deliver cutting-edge technology, data and analytics
    • Attract, retain and empower a highly skilled workforce

• Estate Tax Deductions for Claims and Expenses – Proposed Sec. 2053 Regulations

• Irrevocable Trust Basis Step Up – Rev. Rul. 2023-2 No basis step-up for assets in irrev trusts not in the estate

• Adequate Disclosure for Gift Tax Returns (Schlapfer 2023)
  • If gift is adequately disclosed, 3 year period of statute of limitations on filing tax return
  • A transfer will be adequately disclosed on the return only if it is reported in a manner adequate to apprise the IRS of the nature of the gift and the basis for the value so reported
  • Court in Schlapfer allowed substantial compliance

• GRAT Disqualification over Aggressive Valuation (Baty and CCA)
  • Facts:
    • 2 year GRAT funded with publicly traded stock valued at the mean selling price
    • CEO had been negotiating tender offer
    • Within 6 months, tender offer was x3 value in GRAT
  • IRS: If donor intentionally uses an appraisal that undervalues the assets, the GRAT Annuity is not qualified interest

• Intergenerational Split-Dollar Life Insurance (Levine)
  • Court Rules for Taxpayer (allows discount)
    • Key difference from prior two cases is that taxpayer didn’t hold ability to terminate policy

• Social Welfare Orgs as Charitable Vehicles (Patagonia)
  • Patagonia Founder is giving his company away in pledge to fight climate change
  • Donor funds $1.6B to Marble Freedom Trust to support conservative causes

• Key Attributes to 501c4s
  • Purposes broader than 501c3
  • Unlimited lobbying
  • Political Intervention allowed but now primary purpose
  • No charitable income tax deduction
  • No gift tax on contribution
  • But, no estate tax deduction
  • No private foundation rules

• Assignment of Income for Charitable Gifts (Estate of Hoensheid)
  • Assignment of Income Doctrine Case
  • Family business sold; gift just before sale
  • Court: Donor must pay income tax on appreciation in shares
  • Appraisal was also deficient

• More Charitable Income Tax Deduction Issues (Keefer)
  • Partnership sold a hotel
  • Court: No deduction because the donor had retained interest
  • IRS disallowed deduction because acknowledgement letter did not state charity received exclusive control of property and appraiser did not include identifying number; deduction requires strict compliance

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Improving Upon the Employee Experience

Paul Westall, Co-Founder, Agreus Group
Michelle Jezycki, HR Advisor, Tsotsorkov Family Office
Ashley Taff, Senior Vice President, HUB International
Moderated by Peter Leo, Director, Human Capital, FOX

As the importance of retaining high-performing employees becomes more apparent in a challenging economy, employers should examine what they offer employees beyond financial compensation. Speakers will share the pros and cons of employee benefits to consider such as hybrid work environments, mental health services, parental leave, nursing mothers' programs, and more.

• What type of work structure do you currently have?
  • On-site every day
  • Hybrid in office 1-2 days
  • Hybrid – in the office 3 days
  • Remote every day

• How has COVID impacted employee retention?
  • Retention is about the same – 56%

• Opportunities to Enhance the Employee Experience
  • Onboarding
  • Work Environment
  • Employee Resource Groups
  • Mental Health Services
  • Nursing Mother’s Programs
  • Learning Development
  • Culture & Values
  • Diversity, Equity and Inclusion

• What can we offer to our teams?
  • Wellness – Think about this holistically, it’s all encompassing
  • Encourage the family and the staff to come up with ideas about what they need
  • The most successful that has been seen is personalized wellness, treat everyone individually
  • People can pick their own journey and use the money as they wish

• How do we harmonize an M&A event?
  • Focus on the culture and make sure they understand the mission and how they will feel incorporated and relevant
  • Have a strategy at the beginning, consistent across all departments
  • Be clear with the roles and expectations

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Examining The Family Office Governance Journey

Kim Kamin, Partner & Chief Wealth Strategist, Gresham Partners LLC
Sara Montgomery, Principal, Family Legacy Services, Plante Moran
Holly Pantzer, National Industry Leader, FORVIS Private Client
Moderated by Mandy Chardoul CPA, MST, CFP®, Principal, Top Hand Consulting
Introduced by Gaby Griffin, Managing Director, Council Members, FOX

Every family office is unique, and so are the governance structures needed to meet the family's objectives. This session will help attendees understand when a family office should implement more (or less) formal governance components - from committees to councils to bringing in outside directors alongside family members.

• How do you balance governance vs. autonomy?
  • It starts with document design, building in as much autonomy as you can
  • Build it in smaller bites
  • Having a fixed distribution for autonomy
  • Design the structure with flexibility
  • Give each individual their own control

• How do you deal with pushing them off the block?
  • If you want to see into the future, then start now
  • Let’s figure out if the family is capable
  • Find out sooner than later

• Is it a good idea for a family office to appoint a family historian?
  • Yes!
  • Is anyone interested in being the family historian internally?

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Technology in the Family Office

Jeff Coyle, Founder of Libretto
Murali Nadarajah, CIO Eton Solutions
Nicole Eberhardt, CEO Ledgex
Moderated by Kent Lawson, Chief Technology Officer, FOX

Discussion on new software, future paths of technology, A.I., and technology services for advisors and family office.

• How are you modifying security management?
  • SOC2 Compliance
  • Login security
  • Internal and some external consultants who are experts in the field

• How does a family office provide the same level of security as other institutions?
  • Can have the same capabilities and build off the same platforms
  • Use external validations
  • Having a vigilant culture, it’s everyone’s responsibility
  • Modify behavior to assume it’s going to happen

• What steps to take in preparation for a breach?
  • How much do you spend and is it enough?
  • Always assume you’ll be breached and do scenario planning
  • Design in features for shut down, making information useless

• What if there is a breach?
  • Be prepared
  • Share information and protocols with clients
  • Have the process laid out
  • Follow procedures
  • Build it into quality assurance

• What about remote environments?
  • Being remote could be a benefit
  • Processes are in place already

• What about employees’ security in their homes?
  • Challenges controlling these environments
  • Enforcing using company laptops
  • Signing agreements about device management
  • Use personal for personal
  • Has made things more complex

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Wealth Advisor and Specialist Peer Dialogue

David Toth, President, Membership, FOX
Scott Muench, Managing Director, Core Membership, FOX​​​​

• Taking a look at two companies: Lessons from Market Leaders
  • Challenges controlling these environments
    • Chick-fil-A
      • Clarity of purpose: To Restore
      • Focus – Deliver what cannot be replicated by our competitors
    • The Ritz Carlton
      • Operationalizing Key Plays
        • The Guest Onboarding Experience
    • Table Discussion
      • How do you position your firm/approach? Why should a prospective client choose you?
      • What are the “Key Plays” in an UHNW client relationship?
      • How intentional are you in these key moments and how consistent is the experience across your organization?
    • Professional Development Framework:
      • IQ, EQ, DQ, PQ
      • Advisory knowledge, engagement skills, digital acumen, and practice management
    • Deep discovery is a differentiator
    • The major disconnect
      • 5% didn’t understand recommendations
      • 95% didn’t feel understood
    • Table Discussion
      • What are the top 2-3 key skills that differentiate top advisors today?
        • Service
        • Advice (personal risk, takes courage)
        • Expertise
      • How are you developing these key skills in your organization today?
        • Courage comes with conviction
        • Train people to elevate expertise

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Deviate Consulting is a professional services firm that provides a full suite of software consulting and back office services for single and multi-family offices. Our software expertise includes a wide range of investment and partnership accounting suites prominent in the UHNW wealth management space. Learn More About Deviate Consulting →