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Tax Planning Opportunities for Family Offices

Mar 14, 2019

EisnerAmper’s Personal Wealth Advisory Practice held a fireside chat at Lido Consulting’s 14th Annual Family Office Investment Symposium, held March 7 in Santa Monica, CA.  The chat was led by Stephanie Hines, partner and Tim Speiss, partner-in-charge of the PWA Practice Group. They presented to 480 attendees on “New and Comprehensive Tax Planning Opportunities for Family Offices” arising from the passage of the Tax Cuts and Jobs Act (“TCJA”).

Mr. Speiss discussed a real-life family dynamic: the sale of a third-generation family business, a crystalizing event that converted the family from business owners to investors. 

The pre-transaction planning involved a wealth transfer strategy to pass additional assets to the younger generations using sophisticated trusts structured to minimize current gift tax and shelter assets from estate tax in the future.

Post-transaction planning included discussions about investing in Qualified Opportunity Funds (“QOF”) to allow the family to defer the payment of tax on their gain.  Mr. Speiss discussed how the QOF provisions of the TCJA allows:

  • Deferred taxation on the sale of the family business,
  • The opportunity to reduce the deferred gain subject to tax by 15% and
  • A step-up in basis on the new property at the end of the deferral period

Notwithstanding the lengthy planning discussions with the client, the family decided not to implement any of the planning suggestions.  The reasons for the inaction were threefold:

  1. The family had always been risk-averse and they were still wrapping their arms around the impact of the sale on their financial windfall.
  2. Each generation had different objectives and goals and, even though the planning was designed to be flexible enough to meet the goals of each generation, the family did not feel comfortable doing so.
  3. The QOF opportunities were intriguing, but again, there was a short lead-time and the family was risk averse to locking up their funds for seven to ten years for a potential tax savings that may not have been significant.

The family’s thought process, in their eyes, was that there were less risky investment opportunities. As Stephanie Hines rightfully pointed out, the family “did not let the tax tail wag the dog!”

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James A. Jacaruso, Jr.

James A. Jacaruso Jr. is a Private Client Services Group Director with more than 25 years of tax compliance and planning experience focusing on personal and fiduciary income taxation, gift taxation and wealth transfer planning.

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