FOX Family Office Forum Recap - Day One

Date: Jul 21 2021

Erin Hulse, Deviate Consulting


Erin Hulse is the Founder of Deviate Consulting, LLC, which focuses on accounting, software consulting and selection for family offices, investment advisors, hedge funds, fund administrators and small businesses throughout the world. Software focus includes multiple investment accounting, portfolio accounting and wealth management suites prominent in the industry.

Learn More About Deviate Consulting →

2021 Trust and Estate Planning Update

Jason Kohout and John Nuckolls

Audience poll:

  1. Which planning have you considered most recently? Gifting to use gift tax exemption 66%, Moving to a different state 28%, selling a business 19%
  2. If you were the government and you needed to increase tax revenue, which method would you choose? Raise ordinary income tax rates 28%, raise capital gains tax rates on LTCG and qual dividends 34%, eliminate the LTCG rates on qual dividends 22%
  3. How would you asses the probability that Congress will enact legislation increasing the maximum marginal cap gains tax rate to 43.4%?  50% probability to occur

Tax bill is being drafted:

  • Senate budget committee due to release their proposed tax plan very soon
  • Looking to pay for $3.5 trillion with combination of better enforcement

Key Items on the table:

  • LTCG and qualified dividends taxed at ordinary income tax rate (39.6%/43.4%) for married couples with income over $1M.
  • In the 1970’s the rates were this high for LTCG.  However, there were many more tax shelters and deductions then.

Realization event on gift or death:

  • Tax would be deductible on the estate tax return
  • Unrecognized gain would be taxed if not subject to a recognition event within 90 years
  • Transfers to non-revocable grantor trust would be recognition event
  • Gain deferred at first spouse
  • Exclusions: $250K of tangible personal property, principal residence and $1M per person/$2M per married couple
  • Tax on family owned and operated business would not be due until business is sold; 15 yr. payment plan for illiquids
  • Effective date – after 12/31/21

Question: Do the transfers to non-revocable grantor trusts include gifts and sales as recognition events or just gifts? Likely both gifts and sales.

Other parts of the Biden proposal:

  • Corp rate from 21% to 28%
  • Carried interests subject to ordinary rates for “investment services partnership interests”
  • Loss of 1031 treatment
  • Increase allocations of funds for tax administration – audit of wealthy individuals

Sen. Van Hollen proposal:

  • Sensible taxation and equity promotion
  • Detailed proposal to recognize gain at death and at the time of a gift
  • Recognition event at transfer for current grantor trusts


  • Many rounds of negotiations, final result will be unclear until the end of the year
  • Passage could be early 2022
    • Rate increases could be retroactive to April 2021
    • Gifting recognition looks to be effective after 12/31/21

Crystal ball:

  • Larger context - democrats need to find $3.5T of real revenue
  • Example: Secure Act
  • Look for grandfather clauses, long term payouts and effective dates
    • Tend to blunt unfairness

Should I do an estate freeze transaction?

Typical example, gift or sell appreciated asset to a grantor trust:

  • Focused on losing exemption, discounts for estate tax purposes
  • Removing appreciation out of the estate
  • Shifting tax liability lowers estate tax

Possible alternatives:

  • Sell, don’t gift (maybe a fair market value transaction avoids recognition)
  • Fund with cash
    • Swap later if bill is not passed
  • Use disclaimer planning. Make gift to a marital trust and then disclaim
    • Income tax purposes
  • Anticipate a possible rescission:
    • Disregard a transaction as long as the transaction is completely unwound in the same tax year it occurred
    • Must put all parties back in their original positions
    • Changes in business/investments may not prevent rescission
  • Use a freeze partnership with a current trust

Should I sell assets to recognize capital gain in 2021?

  • 20% v 39.6/43/4
    • More likely to be 28%
  • Three possible effective dates
    • April 2021 selling now realized tax at higher rate
    • Interim date – selling now realized tax at lower rate
    • After 12/31/21 – selling before year end realized tax at lower rate
    • Bill doesn’t pass - Realized tax at lower rate
  • Realization stops income tax deferral
    • At modest rate increase, deferral trumps realization if hold is 2-3 years
    • At larger rate increases, deferral trumps realization if hold is 4-6 years
      • Heavily dependent on your assumptions about investment growth
    • If sale will happen in 2022 make sense to sell in 2021


Navigating the Evolving Insurance Landscape

Morey H. Goldberg, James P. Kane, Seth Spreadbury, moderated by Sean Kevelighan

Audience poll:

  1. Which type of insurance do you deal with the most? Property and casualty
  2. When it comes to insurance, what’s keeping you up at night? Rapidly rising premiums across the board, ransomware/technology and innovation, and climate change
  3. Does your SFO or your clients have new major risks to manage like direct investing, unique holdings? No

Covid, post Covid considerations for life insurance:

Trends for pre-covid – covid allowed insurance companies to change the rules:

  1. If you or your families have life insurance from large companies, they have told the market they will not write new life insurance policies.  They will only service what they have but will not write new business for life insurance.
  2. Term insurance – commodity based products – most important feature is convertibility. If you had a significant change in health during this 20 year product, a convertible feature lets you convert into a permanent form of insurance using the term that started 19 years ago when you bought the insurance.  Some are saying you can’t convert now, re-writing those rules.
  3. Cybersecurity insurance has migrated from a nominal viewpoint and requirements pre-covid, to a 800% increase in product sales and an extensive requirements process

Are there any creative life insurance structures that people are implementing?  Yes, there are two things:

  1. Wealth accumulation life insurance – building up the cash values within the policies over time
  2. Second to die life insurance becoming more popular, doesn’t pay death benefit until both die


Keeping the Momentum: Change Management for Family Offices

Joy Taylor

Strategic Initiatives – Review every six months

Transformation Initiatives – those that typically require a cross functional team of resources to make recommendations, develop processes or policies and secure consensus and engagement.

Performance Initiatives – Tactical efforts which are necessary to support the achievement of your destination and SOAP.  Traditionally fall within someone’s role or job function. They may require cross functional involvement but do not require a separate team.

Transform and Perform – What, who, when.

Change management tips and tricks:

  • If you have a plan for what needs to change, you will feel more control over the pressure of change
    • People are more willing to change if they are a part of the solution
    • Always start a change conversation with a stage setting discussion
    • You can speed up change efforts by clearly defining what ‘done’ looks like
    • Give people permission to voice their concerns
    • Acknowledge you do not always have the answers but you will prioritize the project

Tactics for leading change:

  • Be transparent
  • Reinforce the benefits
  • Stop/start continue
  • Listen to understand
  • Build trust
  • Celebrate accomplishments
  • Foster connections
  • Create certainty
  • Leverage the people, learners and influencers on your team
  • Understand how the change impacts the team
  • Reevaluate priorities to confirm they are still important
  • Recognize and appreciate good work

Audience poll:

What change management tool to you believe will be most useful to you along your journey?

  • Clearly defining perform and transform priorities

Open Q&A

What are the most common roadblocks?

  • There is usually a person who has been around for a long time and we choose not to challenge them, and we need to. People need to challenge old ways of thinking and say those things out loud.
  • What is lean sigma?  Six sigma is about reducing the process, but lean sigma is about doing this efficiently and effectively.
  • How do we form teams who work on change? Hire, identify and retain the most diverse team you can think of.  Diversity of thought.  Seek out people who challenge you and have gifts and talents that you do not have.
  • Any suggestions to keep momentum going after setbacks? Acknowledge there was a setback.  Say why it happened and why did we let it happen.  Then pull the team together and ask them how they’d like to move forward.  Slow and steady, driving force, or let it take its own natural course.


Family Office Regulatory Update

Domingo P. Such, III, Heath Weisberg, Jake Seher

Audience poll:

What’s your level of concern around potential regulatory changes impacting family offices coming from Washington?  46% not too concerned yet but keeping an eye on it.

What is Archegos? It’s a fund that went rogue or a family office

How familiar are you with the corporate transparency act? Know the basics but want more details, or have no idea.

Securities Law Landscape – Dodd-Frank Act

  • Signed into law by Obama in 2010 that excluded family offices from the definition of an investment adviser under the investment advisers act of 1940
  • In 2011 it was approved a new rule confirming SFOs would continue to be excluded from the Investment Adviser Act leaving further regulation of hedge funds to the future

SEC Regulation BI – Best Interests

  • Requires brokers and dealers to operate in the best interests of their retail customers when making investment recommendations
  • There has been some confusion within the industry whether reg BI applies to family offices
  • The sec applies greater compliance obligations to retail accounts
  • The stated policy underlying reg BI does not apply to family offices
  • Congress, the SEC and the CFTC have already determined that SFOs and those they benefit do not require certain regulatory protections and should be exempt
  • Last December, SEC confirmed that family offices that meet certain requirements should not be treated as retail customers

Family offices in the news – Archegos

  • There has been extensive reporting regarding the ripple effects of the collapse of Archegos
  • Archegos utilized substantial leverage and numerous prime brokers to establish multi-billion dollar positions in a handful of publicly traded stocks. When the value of those stocks dropped, Archegos failed to make its margin calls and its prime brokers were left holding large underwater positions with little margin to cushion the blow.
  • The CFTC has indicated it will not issue additional rulings pending review of broader family office regulation
  • The impact has led to calls for regulatory reform, although existing regulations meant to address similar situations currently do apply to family offices
  • Expecting proposed regulations from the treasury department this fall
  • Hoping to structure in a way to exclude family offices, or limited to a single filing