Wealth Actually

New York City residents have the highest State and City tax burden in the country (it’s over 15% at the top level, recently overtaking California). It’s no surprise that New Yorkers are constantly strategizing around their tax burden and potential moves to other states- especially for high earners or those looking to sell a business. But a lot of New Yorkers suffer from ‘advice by cocktail party” and many misconceptions float around as people assume that being out of NY for more than 183 days is “enough”. Getting out of New York’s tax grip is a lot more complicated than that. So we’re going to one of the top experts in the field, MARK KLEIN of HODGSON RUSS. Mark is Partner and Chairman of the Firm and concentrates his practice in New York State and New York City tax matters. He has more than 35 years of experience with federal, multistate, state and local taxation –He may be best known for his public speaking on tax topics. Mark splits his time between the Firm’s New York City and Buffalo offices. For New Yorkers listening, you are going to learn a lot on how to arrange your affairs when for state tax purposes. We’re also going to talk a little bit about the “Convenience Rule” which is impacting a lot of New Yorkers who have “relocated” due to Covid. What do New Yorkers face?-Income and Capital Gains Tax that is the highest in the nation (Over 15%)-Estate Tax What are the typical options when reducing the tax bill? What do you have to show? When moving to a non-tax state, what does a client have to think about? What about the new normal with COVID? What if I’m not working in NYC anymore? Mark and his team at HODGSON neatly sums up the issues here: https://www.hodgsonruss.com/what-to-expect-in-a-new-york-residency-audit.html WHAT TO EXPECT IN A RESIDENCY AUDIT A New York State residency audit is one of the most difficult, intrusive, and document-intensive of all personal income tax audits. And the New York Tax Department has one of the most sophisticated and aggressive residency-audit programs in the country. This handbook follows a question-and-answer format that should tell you everything—ok, almost everything—you need to know about what happens in these audits. You’ll have to call us if you want to know everything! WHAT IS A RESIDENCY AUDIT? A residency audit is designed to determine whether you correctly filed as a nonresident or part-year resident of New York. Because New York residents are subject to tax on their worldwide income while nonresidents are subject to tax only on that portion of their income attributable to (“sourced to”) New York, the difference in tax liability can be significant, particularly if you have substantial investment income. If there is a possibility that you were also a New York City resident, the difference in potential tax can be even more significant since New York City residents also pay tax on their worldwide income while New York City nonresidents pay no tax to the City at all, even if they work there. The audit will generally cover three areas. First, the auditors will focus on the first residency test, called the “domicile” test. Second, the auditors will look to the alternative residency test, called “statutory residency.” And finally, even if you are able to establish nonresidency, the audit will also examine whether you properly “allocated” your sourced income to New York on your tax return. We usually don’t see the New York auditors examining other underlying components of a tax return—such as the income and deductions reported. But in more recent years, as auditors have become better trained (and more aggressive), there has been more of a shift in focus to the ENTIRE tax return, so you should be ready for such questions as well. HOW LIKELY IS IT THAT I WILL BE AUDITED? Very likely. If you are a high-income taxpayer claiming a move into or out of New York, it’s a near certainty you will be audited. The Tax Department is sophisticated and aggressive. Consider some of the numbers: The tax department has ten district offices located across the State (and in Chicago). There are more than 300 auditors who focus on these Over the past five years, the Tax Department has conducted over 15,000 of these These audits have generated over $1 billion in revenue over this time In short, there are a billion reasons why the New York Tax Department watches these issues carefully. If you claim a move from New York, expect to get audited. HOW IS RESIDENCY DETERMINED? There are TWO residency tests. The auditor will first attempt to establish whether you are domiciled in New York. That’s the first test. The second test is more black and white. Under the second test— called “statutory residency”—a taxpayer who is domiciled in another state can still be taxed as a resident if they maintain a permanent place of abode in New York and spend more than 183 days in New York during the year. If you meet either of these tests, you are a resident. So we have to be mindful of both issues. HOW IS DOMICILE DETERMINED? A domicile audit usually is concerned with change: Did the taxpayer move into or out of New York during the audit period? We are often looking to tie that change to a change in lifestyle or some life-changing event, like a marriage, retirement, new job, and so forth. And despite what many taxpayers and practitioners believe, the inquiry is not really focused on where the taxpayer is registered to vote, maintains a driver’s license, or registers his cars. It is a much more subjective inquiry, based on long-standing common-law principles that are often difficult to apply. The general standard from the case law is that “the test of intent with respect to a purported new domicile [depends on] whether the place of habitation is the permanent home of a person, with the range of sentiment, feeling and permanent association with it.” Critically, the party asserting a change of domicile has the burden to prove, by clear and convincing evidence, that the taxpayer abandoned his or her historic domicile and moved to the new location with the intent to remain there permanently. Don’t take the burden of proof concept lightly. “Clear and convincing” evidence is not defined, but we’re sure it means better than 51/49. If a taxpayer has the burden of proof in a domicile audit and the case is a close one, a tie will go the New York Tax Department. Of course, if the Department is asserting a change-of-domicile into New York, the burden goes the other way, and the Department must prove, by clear and convincing evidence, that the taxpayer intended to change his domicile to New York. Overall, though, the domicile inquiry has to do with a taxpayer’s feelings and intentions, which can be difficult to quantify. The nonresident audit guidelines that the Department has put together are of great value in assisting auditors (and practitioners) in working through the issues that come up during a residency audit. Under the guidelines, the auditor is instructed to analyze the taxpayer’s lifestyle, using five “primary” factors to determine where the taxpayer’s domicile—his or her one, true home—is actually located. An assessment of these “five factors,” and a series of less significant “other” factors as necessary, is used by the Tax Department as an objective means to a subjective end: on balance, the place where the factors most heavily favor is likely the taxpayer’s domicile. THE FIVE FACTORS HOME The home factor reviews the use and maintenance of the taxpayer’s New York residence as compared with the nature and use patterns of the non-New York residence. In other words, does the taxpayer behave as though the non-New York residence is her “home”? That is particularly crucial when a New York residence is acquired by a taxpayer whose domicile is in another state or when a residence in New York is retained after a move to another state. So questions about timing, and which residence was owned or occupied first, are often important. But other questions often arise. Is one residence owned but the other a rental? What is the value and sizeof each residence? What actions did the taxpayer take to remove herself from the old community? Has she established roots in the new community? Where does the family spend holidays and special occasions? Those are the questions practitioners have to ask — because we know the auditor will. ACTIVE BUSINESS INVOLVEMENT This factor considers the pattern of employment and the compensation derived from that employment. It will also examine the taxpayer’s active business involvement other than employment. Ongoing participation in decision-making and frequent communication with a business, even after official retirement, can be viewed as the most significant evidence of one’s domicile. For this factor, we would be looking to determine where the taxpayer actually worked on a day-to-day basis as well as the location of his primary office. If the taxpayer is a partner or shareholder in a New York business, the level of participation in the day-to-day management of the business can be looked at as well. Often, of course, the taxpayer is retired, so this is a nonfactor in some cases. Sometimes a taxpayer moves from New York City out to Westchester County, Long Island, or another City suburb. The taxpayer will continue to work in New York City after the move, only as a commuter, and not a resident. Auditors are instructed to be reasonable in this situation, and not inflate the value of this factor vis-à-vis a taxpayer’s otherwise strong non-New York City connections. TIME Time is often the most important factor in a domicile case. Generally, an individual is going to spend the majority of time at his “home.” So the residency audit is naturally focused on this question, and there are a few important aspects of this factor to mention. First, often we see taxpayers focus on the statutory residency test detailed below, and do everything they can to make sure they spend less than six months in New York. That’s great, and it’s obviously important, but a taxpayer who spends 182 days in New York might still have a residency problem under the domicile test. Second, with the “time” factor auditors are trying to determine where the taxpayer spends the majority of his or her time. If the taxpayer does not spend more time in her claimed “home” than in any other location, the auditor will have questions. So we will often focus our clients on the ratio of days spent in the new jurisdiction vs. days spent in New York. The bigger the ratio, often the better the case. A look at the raw number of days spent in any given place, however, is not always determinative either. Indeed, the domicile test is focused on a change in patterns, more than a simple quantification of days in and out of New York. Thus, for example, a taxpayer who goes from spending 300 days in New York to 150, and from 10 days in Florida to 145, certainly may be able to establish a change in domicile given the change in pattern. This factor sometimes takes on less importance for those who commute into New York. As stated by the New York Tax Appeals Tribunal in the Knight case, regular presence and significant time in New York City, without further proof of a New York domicile, is not at all inconsistent with a suburban commuter who comes into New York just for “work or play.” Along the same lines, while statutory residency is concerned with a day count test that focuses on whether the taxpayer spent any part of a day in New York (i.e., “a minute is a day” in New York), practitioners can advocate for a different application of the “time” factor analysis when the facts warrant it. For example, if the taxpayer spent 250 days in New York City, but didn’t spend a single night in New York City during a particular tax year, the 250 days in New York City will rightfully carry less significance. Finally, to state it bluntly, this factor can also be a real pain in the neck. Proof of day-to-day location in some form or another is generally required for every single day in the audit period. Maintaining, and then producing this evidence on demand, is obviously a time-consuming process, and—like the statutory residency test described below —one that requires an examination of diaries or appointment books, expense reports, credit cards, phone bills, frequent flier statements, passport, and other similar documents. NEAR AND DEAR This factor is often the most unusual. The auditor will investigate the location of those items that are of value to the taxpayer, whether the value is monetary or sentimental. Insurance riders are also often used by auditors to attempt to verify the location of treasured items. They are “those personal items which enhance the quality of lifestyle.” We like to call this the “teddy bear” test, looking for the things it just wouldn’t be “home” without. FAMILY This factor used to be considered only if the auditor was unable to reach a conclusion using the other four “primary” factors. In today’s residency audits, however, the “family” factor is analyzed along with the other primary factors in the ordinary course of the audit. The scope of this factor, however, is somewhat limited. Auditors are only supposed to consider where a taxpayer’s spouse and minor children live in considering where a taxpayer is domiciled. Indeed, as acknowledged in the Tax Department’s audit guidelines, the location where minor children attend school can be one of the most important factors in a domicile audit. Occasionally, however, the location of other family members (siblings, parents, and so forth) may be determinative in a person’s choice to change domiciles. When we find that to be the case, we bring it to the auditor’s attention. WHAT ABOUT CHANGING MY DRIVER’S LICENCE, REGISTERING TO VOTE, ETC? None of the five “primary” domicile factors look to things like voter registration, driver’s licenses, and so forth. Those are the so called “other” factors (so called in the Tax Department’s audit guidelines), and include: the address at which bank statements, bills, and other family and business correspondence are received; the physical location of safe-deposit boxes; the location of auto, boat, and airplane registrations and of the taxpayer’s driver’s or operator’s license; voter registration, and where and when the taxpayer voted; possession of a New York City parking tax exemption; telephone services and activity at each residence; and a taxpayer’s domicile declaration in legal documents such as a will and through property tax exemptions. And although it is important that taxpayers who change their residence actually do these things, generally these aren’t the types of things that are determinative in a residency audit. We like to think of the “other” factors as defensive in nature: We like to have them to back up our residency position, but they won’t be enough to carry the day. ARE THERE ANY SPECIAL SAFE HARBORS AGAINST THE DOMICILE TEST? Yes, there are a couple, mainly to cover people who are still domiciled here but spend very little time in New York or the United States. They are: The “30-Day” Test. This will apply to taxpayers who (1) do not maintain a permanent place of abode in New York for any part of a tax year, (2) do maintain a permanent place of abode outside of New York for all of the tax year, and (3) spend no more than 30 days in New York during the tax year. The “548-Day” Test. This will apply to taxpayers who (1) are present in a foreign country on 450 days of any 548-day period; (2) are not present in New York for more than 90 days of the same 548-day period (and whose spouse and minor children are not present in New York for more than 90 days of that same 548-day period); and (3) whose presence in New York during any portion of the 548-day period that is less than a full year will be in the same proportion to the total number of days in the short period as 90 is to 548. WHAT IS THE STATUTORY RESIDENCY TEST? A taxpayer can also be a resident if he or she qualifies as a statutory resident, of New York State and or New York City, under section 605(b)(1)(B) of the New York Tax Law. This test has two requirements: Maintenance of a permanent place of abode (a “PPA”); More than 183 days in New York WHAT IS A PPA? A Dwelling Place. The first requirement—maintenance of a PPA—has a few different parts. First, the place of abode must be “a dwelling place.” That means that it must be suitable for human habitation throughout the year. A rustic hunting camp lacking running water and heat, for example, would not qualify as a taxpayer’s PPA. Nor would a dwelling that is suitable and used only for vacation purposes by the taxpayer, perhaps because the abode doesn’t have heat in the winter or year-round road access. And if an abode is under significant construction, this can also help to undermine the notion that it is a PPA. Photos, utility bills, construction documentation, and other materials could be used to prove all of this. The Gaied Case. Also, the place of abode must be “maintained” by the taxpayer as a residence for himself. Ownership or a property Statutory Residency interest in the dwelling, for those purposes, is irrelevant. Based on a 2014 Court of Appeals case called Gaied (handled by our firm), in order to qualify as a permanent place of abode, there must be some evidence that the taxpayer used the dwelling as a residence, or had a “residential interest” in the abode. Since that case came out, we’ve been grappling with the Tax Department about what that really means, so this issue is something to investigate and discuss with your advisor as you prepare for the audit. Corporate Apartments. Corporate apartments maintained for use by an executive or employee are one example. If a company maintains a corporate apartment that is used by many people, or if an apartment is maintained for something other than as a residence for the taxpayer or his or her family, that apartment would not be considered the PPA of any one person. The taxpayer under audit would, however, have to prove that the apartment was regularly used by more than one person (and that, given this fact, the taxpayer didn’t have a dedicated space or bedroom within the apartment), usually by providing logs or other proof that arrangements must be made in advance for the apartment’s use. The 11-Month Rule. Finally, the PPA must be maintained for substantially all of the year. The law contains the “substantially all of the year” test, and the Tax Department has historically interpreted that as a period of time that exceeds 11 months. So under this “11- month” rule, if you get rid of your place in mid-November or acquire your place in early February, you should not be subject to the statutory residency test regardless of how many days you spend here. HOW DOES THE DAY COUNT TEST WORK? The second requirement for statutory residence—spending more than an aggregate of 183 days of the tax year in the state (and in New York City, if City residency is an issue)—is often the most difficult and frustrating aspect of a residency audit. To begin with, the 183-day test does not apply to full days only. “Days” for this purpose are parts of days—and any part of a day is equal to a full day in New York. So, for example, if the taxpayer wakes up in his New York apartment on Saturday morning, drives to Atlantic City for the weekend and returns to New York after dinner Sunday evening, he still has two days in New York (he woke up in New York on Saturday and went to sleep in New York on Sunday). Also, the burden of proof is on the taxpayer, and unidentified or undocumented days are counted as New York days. Thus, if there’s no proof of where the taxpayer was on a particular day, can you guess how the auditor will treat it? Although any part of a day counts as a day, there are a couple special exceptions: Travel Days. Presence in New York is disregarded if it is solely for boarding a plane, train, ship, or bus for a destination outside of New York or if it is a continuation of travel begun outside of New York. For example, if you depart from Connecticut and drive through New York to Maine, your time in New York is not considered for statutory residence day count purposes. If however, you leave the highway to have dinner, the day could become questionable. Medical Days. Treatment in a New York medical facility is not counted as days in New York for statutory residence purposes. This is inpatient care; treatment as an out-patient still counts as a day in New York. In terms of the documentation needed during the audit, there’s a whole laundry list of items to consider, including: Cell Phone Usage. These records have become the most important source of documentation to track days. Most cell providers maintain records that show where the taxpayer’s phone was (or what tower the taxpayer’s phone pinged off of) whenever a phone call was placed or received. Other providers, such as AT&T, also provide location records documenting cell tower locations for every text and data usage event, too. The tax department can subpoena these records, or we can usually get them ourselves. Credit Card/ATM Statements. Taxpayers tracking their New York time and spouses/children should maintain separate credit cards. American Express separates purchase detail for each separate cardholder on monthly statements, but other companies that aggregate purchases made by various cardholders on a single statement pose serious difficulties for taxpayers on audit. Keep an eye out for entities that generate “false positive” New York activity, which can occur because a credit card is on file at a dry cleaner, at a grocery store, or other similar location, or because of online or remote purchases. Personal Diary. The Tax Department should accept a personal, contemporaneous diary on audit as proof of a taxpayer’s location, but it often doesn’t. The credibility of a personal diary is considerably bolstered by corroborating third party documentation. Outlook or Similar Electronic Calendar. These are useful too, but taxpayers can retroactively alter and adjust electronic calendar appointments and entries, which limits the usefulness of these types of calendars on audit. Taxpayers should be careful amending calendar appointments, unless done within a reasonable time frame following the original appointment. Flight/Travel Records. Taxpayers should keep all travel records, including boarding passes, hotel folios, receipts for fuel and other purchases, limo and taxi receipts, copies of passports (even if expired), etc. Taxpayers should join frequent flyer programs for commercial airlines they fly with, as the frequent flyer programs can act as a back-up record of the customer’s flight history for a number of years. EZ-Pass Records. EZ-Pass records are a common source of documentation in residency audits, particularly when a taxpayer lives in the tristate area and commutes into New York State or City for work. To the extent possible, taxpayers should be careful not to commingle EZ-Pass tags among several users or vehicles, as it’s often difficult to determine exactly who was in what vehicle at what time when tags are shared. Each family member should have a separate EZ-Pass account in his or her own name. It’s sometimes difficult to obtain EZ-Pass records from a non-New York EZPass authority, which makes saving EZ-Pass statements as they’re generated more important. Driver Logs. If a taxpayer has a personal driver or limousine service, it’s important for the driver to keep a detailed and contemporaneous log indicating who was in the car, the origination location and destination of each trip, and date and time of each trip. Landline Phone. It’s often difficult for taxpayers to obtain detailed reports of their landline telephone usage, and sometimes this information would be of limited value anyways, because multiple users could be making or receiving phone calls (including staff and visitors). This doesn’t stop the New York taxing authority from issuing subpoenas to obtain landline call detail, however. Swipe Card Records. Many companies and buildings maintain records and logs of an occupant/employee’s entrance/exit detail through electronic entry systems. When these records are available, auditors are requesting them. These records are often destroyed on a revolving basis, however, and thus may only be available for a limited period of time. USE OF TECHNOLOGY TO TRACK DAYS Given the effort and pain associated with keeping records to prove how many days an individual has spent in a given jurisdiction, it may make sense to use technology to automate the process. Monaeo, for example, has designed software to track the days spent in relevant jurisdictions. Monaeo uses the GPS on a mobile device to do this while protecting the individual’s privacy. Monaeo has designed its software to: Issue a warning when a user is close to a limitation that may create residency in a specific jurisdiction, such as 183 days in New York Automatically generate a third-party record of locations, which may help defend the taxpayer in the event of an audit IF I WIN THE RESIDENCY TESTS, AM I DONE? Not so fast! You still have to establish that, as a nonresident, you correctly allocated your income to New York. Under New York’s rules, nonresidents of New York are required to pay tax on income that is derived from “New York sources.” Here’s a listing of the typical types of income that could be treated as New York source income: Wage income associated with days worked in New York Director’s fees Commissions derived from New York customers Income from partnerships or other flow through entities And here are some items that would normally NOT constitute income from New York sources: Investment income derived from stocks or other “intangible” assets Gains on the sale of property located outside New York Income from public pensions HOW DOES THIS “ALLOCATION” AUDIT WORK? Normally the auditor will ask to see copies of W-2s, employment agreements, stock option agreements, etc. to determine how you earned your wage income. Then we have to do a similar kind of “day counting” that we did for the statutory residency part of the audit. But here, the focus is on workdays, and determining the percentage of days worked in New York over the period of time in which the income was earned. All of the recordkeeping items above can help here, plus things like expense reports, attendance summaries, etc. can be helpful. The rest of this audit process will depend on how you earn your income. If you made money from buying and selling properties, the auditor may request records detailing the underlying transactions. If you earned income through partnerships or other flow through entities, the auditor will likely request copies of the K-1s associated with those entities. Or if you earned your income through sales of tangible or intangible assets, the auditor will be looking to determine whether any of those assets were related to New York sources in some way. HOW LONG IS THIS AUDIT GOING TO TAKE? Residency audits tend to be slow processes. The accumulation and analysis of the documents can take months. Auditors cannot be hurried in their review of documents. Discussion and negotiation can drag on for months or longer. So prepare for it to take at least 6 months to a year. DID YOU SAY “NEGOTIATION?” Yes. The results here are not always binary, all-or-nothing type conclusions. Many audits are resolved for less than 100% of the tax that might otherwise be due. WILL I BE CHARGED INTEREST ON ANY TAX THAT IS DUE? Yes. In most circumstances statutory interest will be added to any tax liability determined as a result of the audit. It cannot be reduced or negotiated. Interest rates change quarterly but have been generally in the 7.5% range in recent years. WILL PENALTIES BE ASSESSED? New York tax law provides for the imposition of penalties for failure to file, failure to pay, substantial understatement of income, and/or negligence. During the negotiation process, we will always pursue the abatement of such penalties as a condition for settlement of the case. HOW WILL THIS AFFECT MY FEDERAL TAX RETURN? A New York residency audit generally does not affect the federal return for the year under audit. Under pre-2018 law, the New York tax paid as a result of this audit was deductible on your federal return for the current year, if you itemize your deductions and were not subject to alternative minimum tax. But effective 2018, this benefit basically went away, as deductions for state taxes were capped at $10,000 per year. DOES A RESIDENCY AUDIT HAVE ANY IMPACT ON ESTATE TAXES? It can. A determination that a taxpayer is domiciled in New York applies to income and, potentially, estate taxes. HOW WILL THE NEW YORK AUDIT AFFECT MY HOME STATE TAX RETURN? We may advise you to file a protective refund claim with your home state to keep its statute of limitations open until the New York audit is concluded. Then, some of the additional New York tax paid may be used to claim a credit from your home state for taxes paid to another state. This is not a dollar-for-dollar calculation and will be limited to the amount of tax you actually paid to that state on the New York income as well as that state’s rules with respect to allocation of income and other items. WHAT ABOUT NEXT YEAR? Domicile, once determined, remains the same until you take some action to change it. If domicile is the only issue of your audit, and the auditor agrees you are not domiciled in New York, there should be no subsequent audit unless you relocate to New York or take some other action that might be construed as relocating. Statutory residence stands alone. It can be examined every year. As a practical matter, though, our experience has been that a taxpayer who has proven they did not spend 183 days in New York during the audit period will probably not be audited again for several years. A taxpayer who was unable to prove that they did not spend 183 days in New York during the current audit period will almost certainly be audited again for the subsequent years. Allocation may be reviewed every year. In our experience, if a taxpayer proves that he has allocated correctly in his current audit period, the likelihood of a subsequent audit is greatly reduced. THE POTENTIAL FOR DOUBLE TAXATION? Can you be a resident of two states (and pay two sets of State Taxes)? YES The Barker Case- An expensive outcome of being caught between being a resident of CT AND NY- and having two pay two sets of state tax. BONUS: COVID AND THE CONVENIENCE RULE IN NYS STATE New York imposes a tax on non-residents for income “derived from sources in” New York, including income from a “business, trade, profession or occupation carried on” in the state. For non-resident employees who perform services both in and outside of New York, the income derived from New York sources is determined by the proportion of days worked in New York versus days worked everywhere else. Under the convenience rule, taxes related to work-from-home days for non-resident employees assigned to work in New York are generally allocated to New York, regardless of where the employee lives. HOW DO WE STAY IN TOUCH? MARK KLEIN at HODGSON RUSS MARK KLEIN LINKEDIN WEALTH ACTUALLY https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

GRIFFIN BRIDGERS wears two hats – estate planning attorney, and content creator.  He is a partner with the law firm of HUTCHINS & ASSOCIATES in Denver, Colorado, and also is piloting a fledgling media venture centered around bespoke tax and estate planning education in the digital age.   IN THIS EPISODE: Quick tour of the changing estate planning landscape and the legislative shifts. Why GRIFFIN has started his media company Trends in the business models of the wealth management industry A couple new developments in outside (private equity ownership) of LAW FIRMS and ACCOUNTING FIRMS that bear monitoring. This could have wide ranging “aggregator effects” similar to what we have seen in the RIA space. Will these be good for the industry? LEGISLATIVE FLUX Chaos and disorder with legislative flux right now . . .What are you seeing? Crystal Balls often don’t help . . . INSIDE BASEBALL IN THE WEALTH MANAGEMENT INDUSTRY Service Models What are the models that are out there that you like? What “should” services include? Is there an optimum model? What is the value proposition?  Does it change? The Importance of Transparency (“Truth in Speaking”) Appropriate Fees- how “at risk” is the 1% AUM fee? CONTENT CREATION AND ESTATE PLANNING Let’s get into the media side of things . . . you have a terrific Youtube channel that sets out various concepts in estate planning- How does that help your practice? What slot were you trying to fill? Somewhere between Estate Planning 101 and Hypertechnical? Is there a Michael Kitces of estate planning? Media- what has worked for you? Effective amounts of time? What problems did you try to solve? Youtube- how did you stumble onto this s your platform of choice? Substack  How do you think about the platforms? What are your plans on this front? For Griffin’s YouTube channel: https://www.youtube.com/channel/UCRaGK2J72zXDvLLcy2aPl-w/videos https://www.youtube.com/watch?v=UBEHBK1ebmY FUTURE TRENDS- LAW FIRM AND ACCOUNTING FIRM AGGREGATION? Non Practitioner Ownership- Law firms AZ, UT, FL Private Equity’s Push into Accounting firms – ex. EISNER AMPER conflicts turmoil with departing partners Private Equity timetables for ownership and investments customization personalization who “owns” the clients HOW DO WE STAY IN TOUCH? For GRIFFIN’s NEWSLETTER: https://griffinbridgers.substack.com For GRIFFIN’s LAW FIRM website: www.hutchinslaw.com For GRIFFINS LINKEDIN: https://www.linkedin.com/in/griffin-bridgers-a4a26a15 https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

In this episode, MATTHEW MCCLINTOCK joins us. Matthew is a high end estate planning attorney and is a Principal at EVERGREEN LEGACY PLANNING which is based in Colorado. He has built his practice at the cutting edge of Cryptocurrency and Estate Planning, a field that is evolving by the day. This is Matthew’s second appearance and he’s on again for a good reason. We last recorded Oct. 2nd 2020. Bitcoin was around $10,000 . . . it’s now valued in the $48,000 range (having spiked over 60K!). Many other cryptocurrencies and digital assets like Non-Fungible Tokens (NFT’s) have seen similar value increases. We’re going to find out: What if anything is different around legacy planning in the crypto world? What is involved with estate planning in the white hot NFT space? How does one properly staff the roles in crypto estate planning structures? Matthew is an amazing resource and is one of the top experts in the field of estate planning and digital assets. Since this is his second appearance, we skipped the usual introduction and went straight into it. Finding experts and prepared vendors to administer trusts with digital assets Staffing Trust Functions Communicating Responsibility at the intersection of Digital Assets and Analog Trust Law Estate Planning for Digital Assets: What’s changed, if anything? Low interest rates Volatility of Prices Current legislation? Potential New Deadlines? Use of Traditional Tools like GRATS, IDGTS and CRUTS amongst others Taxation Issues Exchange issues / security issues 401K / IRA plans – Peter Thiel? Best practices- use of entities? Prudent Investor issues? NFT’s (Non-Fungible Tokens) What is in an NFT? Fungible vs Non Fungible What do you actually own when you buy an NFT? The Actual File (and where is it held?) The “Certificate of Authenticity” on the Blockchain The Copyright to the Work??? (Very Uncertain) What re the main types of assets sold in NFT form (so far?) Digital file / collectibles Conventional art tokenized Gaming characters/terrain – rent or sell   The Bitcoin Standard and what bitcoin did Crypto-asset “succession” planning A Quick Note on Regulation Major Players in Sen. Cynthia Loomis WY & Erik Voorhees, Founder of Shapeshift Balance of intelligent Reg and chilling effect Logical points of regulation: On and Off Ramps, Taxation Who realistically is responsible for KYC in the dark pools? Which Agency gets this “plum” assignment? OUTRO EVERGREEN LEGACY PLANNING https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

The LGBTQ+ community has always been an important part of American fabric. But it’s only in last two decades that society, the law and the financial services industry have started to catch up to the community’s unique planning needs.  To help us put context around these features and the evolution of the law, I spoke with estate planning attorney, Brian Balduzzi Brian is a lawyer in Philadelphia at the international law firm FAEGRE DRINKER.  Among many other activities, Brian serves as the Vice President of the Cornell Pride Alumni Association, where he holds his MBA. I’m thrilled to have him on to discuss this important topic. BACKGROUND We start off talking about Brian’s background and a little bit about his practice. Then we dive into some specifics. LGBTQ+ TRENDS – Demographic Shift – more need, more complexity – Court decisions in review – Windsor/Obergefell planning and post-planning, and (perhaps) re-planning – Planning Needs: Concepts around DINK (Double Income No Kids) lifestyles, urban lifestyles, chosen family, estranged from biological family, dignity under the law/hospitals/banks SPECIFICS – Documents: Extra durable, trust planning (privacy, avoid/minimize probate), ILITs (insurance to cover unexpected costs or taxes?), Power of Appointments, no contest clauses, guardians – Holistic Advisor: gender-neutral terms, no assumptions re: marriage, family tree dynamics, privacy/confidentiality/outing – Some Must Review/Updates for all LGBTQ+ families: Pre-2015 planning, beneficiary designations, decisions to marry/adopt, prenups, separation/divorce planning OUTRO You can find Brian here: BRIAN BALDUZZI LINKEDIN

For many wealthy families, concentrated liquid investment positions present special types of issues. More often than not, a diversification plan for a position that has been built up over decades, is relegated to a 5 minute discussion.  And it shouldn’t.   From low-cost basis issues, income requirements, family executive involvement and even other factors like emotional attachment, the decision to buy and sell liquid positions can be more complicated than it looks.   To help us understand the best practices in the area and some of the tools at a family’s disposal, were going to talk to STEPHEN DAVENPORT CFA from DECATUR CAPITAL MANAGEMENT in Atlanta, Georgia.   Based in Atlanta, Steve is the Director of Alternative Investments for Decatur and advises clients on a wide array of issues including concentrated position management. Steve received a BS degree in Industrial Engineering at Columbia University, a BS degree in Math/Computer Science at Providence College, and a MS degree in Finance from Boston College. STEVE’S BACKGROUND Engineering and quantitative skills applied to finance Lots of questions around “risk vs return” turned into “emotion vs. reason” Kahneman and Taversky – Risk avoiders instead of return enhancers 2000 a time of excitement and wealth creation in Boston/Silicon Valley 2005 Moved to ATL and worked w Wilmington Trust on DuPont heirs 2015 Moved to STI and worked on Coke heirs 2020 Moved to Decatur to help RIAs/family offices & institutions to manage risk STEVE’S APPROACH TO INVESTING – PERFORMANCE, GOALS, EMOTIONAL COMPONENTS Aligning clients to all goals and not just financial (work in chip space or health care so…) Incorporating all factors including emotion in the investment process ESG is about values and aligning your resources with things you believe in MSCI/TruValue measure companies and companies write CSR Like accounting standards, no global measures UNPRI for three years Indexing – Good, bad and UGLY, so inclusive to be “complete” 1: People want more so they can stay invested in tough times (sell at bottom – 1.5%) 2: Lengthen horizon and 3: Lower fees are three legs to the stool of investment success Investing in ideas/companies who you agree with, ESG may hold the key to better returns Holding on may be more important than what you hold CONCENTRATED POSITIONS- (Blackrock buying Spiderworks, there is a limit to ETFs . . . ) 1 – Customize more holistic solution 2 – Use tools of options market to enhance the transition 3 – Always adjust as the playing field changes ETFs are a one solution fits all solution but client risk and return parameters are unique  BRK- example – FINDING INCOME in the OPTIONS (W/ NO DIVIDEND STREAMS) Recently created wealth by IPO – UBER Familial wealth, sitting versus actively managing Coke – not selling is value added? Complex situations require a sophisticated approach! Took a while to acquire so disposition…. INVESTING THEMES TO DEFEND AGAINST (OR TAKE ADVANTAGE OF) . . . Inflation – Fact or Fiction? Present across the spectrum of risk: Crypto, NFT, SPAC, Meme, IPO, Real Estate, FANG  Fiscal and monetary coming together like never before Is it Temporary or is a CB (central bank- not just US) Put option forever? TAX AND POLICY CHANGES Target the top 1% …., Cap gains from 23% to 35-40%, planning for lifetime step up, dividends at OI rates Ambitious plans need funding, never let a good crisis go to waste, $4 trillion and counting on COVID Stimulus to get economy through 2022 election and beyond Market reacts environment and creates solutions Option overlays will be the beta adjuster “Diversification sometimes fails when you need it most . . .” Research paper Universal for the masses, Black Swans becoming more common so should solutions for them!  â€œWealth effect” really not focused on Main Street and Fed knows this is increasing inequality  â€œTrickle down” not backed by research so changed the name to protect the idea With Fed in markets, there is very little that can be thought of as “normal market operations” Best time to buy an umbrella is before it starts raining OUTRO: STEVE’S CONTACT INFORMATION Steve Davenport, CFA sdavenport@decaturcapital.com https://www.decaturcapital.com/stephen-davenport/

Divorce in the Ultra-High Net Worth Space is a little bit different.  Gates, Bezos, Kardashian . . . You don’t have to look too far into the headlines to see how important this space has become for wealth families. While the emotional pain is the same, the stakes are higher and the process can be more complicated.  OLIVIA SUMMERHILL joins us to help us think through the issues. In her practice, Olivia has seen the devastating effects of divorce on stay-at-home mothers in ultra-high-net-worth families. She is the founder of SUMMERHILL WEALTH MANAGEMENT and helps to protect their lifestyle when they are going through a high-stakes divorce. Having developed her financial career at JP Morgan, Olivia broke out on her own and started her own firm focusing on the space. Olivia’s practices focuses on affluent women.  She is one of few financial professionals to hold Certified Financial Planner, Certified Divorce Financial Analyst, Certified Divorce Specialist, and Behavioral Financial Advising credentials. I spoke with Olivia on the ins-and-outs of team-building around a divorce, her unique business model focusing on UNHW women and her advice for people going through the process. Describe your background- -How did you get to that point to making the leap to starting your own practice? -Any specific challenges? -You focus on a few specific niches- larger situations and women coming out of divorce. How did you come to specialize in that area? -How do you define UNHW? ($50mm) Engaging With The Client: Information Asymmetry- -How do you get past the initial client’s shock? -How do you get clients through that education process? Teamwork with the Advisors -Divorce is complicated and involves many different experts besides the divorce lawyer- what does a good team look like?  (Legal, Tax, Investment, Estate, Psych, Administrative/scheduling) -How do you integrate with the team / issue spot / decide who the quarterback is? -Any examples where that has worked well (and where it hasn’t?) What does your process look like? -How do you know when to step in or step away from the emotional and psychological repair that needs to happen- when do you call in the experts?  Do you get involved in the child custody issues? -A big challenge is understanding cash flow needs and dividing illiquid wealth – how do you help clients think through that – how does that work with a divorce lawyer’s strategy?  Pre/Post nuptial planning? -If going through the internal questioning, what should someone thinking about a divorce be thinking about?  What information should they be thinking of collecting?  What happens when you don’t think in these “business” terms? Practice Notes -You have a unique (and cool / aligned) business model- you consult but don’t manage money- help us think through that.  How do you get paid for your value (I will be listening intently to this- I struggle with it myself)!!! -What do you do to “get out there” given your business model? -Is there anything idiosyncratic about doing business the Pacific Northwest? Do you clients come from all over? Staying in Touch -How do we keep track of you? OLIVIA’S LINKEDIN PROFILE: https://www.linkedin.com/in/oliviasummerhill/ OLIVIA’S PODCAST: https://podcasts.apple.com/us/podcast/divorce-for-wealthy-women/id1546130936?i=1000503911523 OLIVIA’S IG: https://www.instagram.com/summerhillwealth/?hl=en

“Shirtsleeves to shirtsleeves in three generations” is as old as commerce itself. Family enterprises rarely make it beyond three generations for many reasons. Today, we hear the story of the Grossman family from BEN GROSSMAN who co-operates the family business with his brother, David. They are fighting that “Shirtsleeves” phenomenon with an interesting set of tools and intention. In this podcast, we listen to their story of building the family business, managing transition and creating the conditions for success in future generations. GROSSMAN MARKETING GROUP was founded as the Massachusetts Envelope Company back in 1910. Ben Grossman and his brother, David, are the 4th generation of family leadership 111 years later. The company has evolved into a full-service traditional and digital marketing firm. Ben Grossman went to Princeton University. After college, Ben worked as a strategy consultant to Fortune 500 clients, as well as started and sold a sportswear and marketing firm. He went on to receive an MBA from Columbia Business School before taking the reins of the business with his brother. Ben’s Background The Business “Then”: The Nature of Grossman Marketing Group- -What does GMG do? -A Brief History and who are the players? -What was important to your father and other family members? -How were you and your brother “developed” and integrated in the business? The Next Generation-  The Business “Now” -What processes do you and your brother use to run and evolve the business? **“Start Stop, Continue” Review -How does a marketing company survive and thrive in this day and age? -How was your succession process different from other businesses that you see? -What did succession look like for you father? -Establishing credibility and not taking success for granted -What hasn’t worked?  What are the frictions?  Anything you would have done differently? -Outside Boards? The Business “Next” How are you thinking about ownership and operational succession? What do you think your kids’ involvement will look like?  Will it be with the firm? How do you think about the impact to other constituencies? (I.e. community, employees, customers, vendors) GMG’s Strategy for the future “The Letter” – Examples of Communication within and outside the family. This is a treasure trove for families looking for good examples of value communication. They articulate an ethos that has served the family for four generations (plus!). Link to Ben’s great grandfather’s dollar-a-year check from the US Government: https://uploads-ssl.webflow.com/6037c57f7424b4ea01ef8e45/60515ae13f381f3f1ef1ca37_Dollar%20a%20year%20man%20check.jpg Letter the Grossman Marketing Group sent out when Ben’s great-grandfather left to serve FDR and when Ben’s grandfather left to serve in the Army: https://uploads-ssl.webflow.com/6037c57f7424b4ea01ef8e45/60515a91e1e851084c30e394_1941%20Letter.pdf Letter Ben and David sent out when their father left the company to serve as Treasurer of Massachusetts 70 years after our great grandfather left for public service: https://uploads-ssl.webflow.com/6037c57f7424b4ea01ef8e45/60515a913f381fee04f1c956_2011%20Letter.pdf How do we keep in touch with Ben? Ben’s Blog: BEN GROSSMAN’S BLOG GMG’s acquisitions page summary here: GMG ACQUISITION SUMMARY Grossman Marketing Group: WWW.GROSSMANMARKETING.COM Personal website: WWW.BENGROSSMAN.INFO LinkedIn: BEN GROSSMAN Twitter: @BIGROSSMAN

With interest in alternative asset classes at an all-time high, the focus of family offices and other investors has been to investigate more “liquid assets.” We’re not talking about cash or oil . . . the spirits world has produced scores of profit stories at the asset class and business level. Bourbon is a niche that has been on fire recently. With a low interest rate environment, private capital’s huge appetite for “uncorrelated” asset classes, and a theme that is a haven for entrepreneurs in Kentucky and beyond, this is a good time to investigate the bourbon space. It is more than just Jim Beam, Maker’s Mark and Wild Turkey. (FYI- Jack Daniel’s is technically a Tennessee Whiskey and not a bourbon). To get our arms around the subject, I spoke with MARK GARBIN and centered the discussion around bourbon. MARK is an investment management executive focusing on fiduciary duties issues in investment vehicles for public and private funds.  He is a CFA charter holder and professional risk manager.  More importantly, he is an expert on bourbon and whiskey both from a quality and taste perspective and as an asset class. He is the author of many books including his new book “Whiskey Glory” – about the rise of the Dewars famous lineup. We take a deep dive into bourbon as an asset class- actually owning the liquid inputs and deriving yield from them- to investing in a bourbon company. Finally, we get into some of the fun stuff around the great tasting bourbons and terrific whiskey bar experiences that Mark knows well. This podcast is so chock full of information that I’m having a transcript done (which will be coming soon). in the meantime, the outline is below. Enjoy! A little background on Mark How did you get involved in Bourbon? Becoming a sommelier and writing about “Whiskey and Romance” in NYC https://www.amazon.com/Whisky-Romance-Manhattan-Neighborhood-Restaurants-ebook/dp/B07565P833/ Different classifications and ways to learn about the bourbon subject – rex videos Bourbon as an asset class Why is Maccallan 18yr whiskey at $350 vs the 25yr $3500 How does a barrel program work? Expected returns? Fixed Income attributes (and risks)? How do warrants factor into a barrel program? Bourbon as a Business What makes for a good whiskey company and brand? A brief discussion of the antiquated 3 tier system (manufacturing, marketing, 3rd party distribution) reduces profit for the producer- and why a direct link to consumers is vital now. The legal and distribution landscape is changing. Digitialization of marketing (and the rise of direct distribution) Experience of Bourbon at Source- great bourbon at the experience level- Good to visit, bad to distribute- lots of “limited release” The rise of goodwill, the mailing list and the repeat buyer Brand is vital and important to the exit strategy The Bourbon Experience Favorite Places Favorite tastes How do we stay in touch?  MARK GARBIN Twitter: @CoherentCapital Where do we find the book? https://www.amazon.com/Whisky-Glory-Tasters-Stories-Compendium-ebook/dp/B096PMS7FG/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

With the Biden proposals comes the potential for tax increases at the income, capital gains and estate tax level. Life insurance is becoming interesting again to a lot of families looking to expand on their functions of income replacement, business succession and tax planning. Using trusts and other structures to amplify their effectiveness is shifting back into focus. The ongoing maintenance of these structures is usually underestimated and the resulting liability could be a nasty surprise for many families. To help understand the emerging tax environment and the best practices around life insurance and the under-appreciated task (and risk) of administering life insurance trusts, I spoke to ANDREAS STUERMANN. Born and raised in Bremen, Germany, Andreas moved to California in 1987. He began his financial services career with John Hancock in the San Francisco Bay Area as their technical resource in sophisticated life insurance and benefit transactions. In 1998, he joined Winged Keel in New York City for which he managed design, implementation, and administration services of substantial life insurance, non-qualified benefit, and wealth transfer programs.  In 2003, he founded Stuermann Consulting, Inc., an independent insurance and benefit advisory firm. Background What is the function of life insurance? Replace income, Fund Business Succession, Income Capital Gains, Estate taxes, Insurance as an Investment? Asset Protection? Executive compensation? What is the benefit of having insurance owned in a trust?   Proceeds pay outside of the insured’s estate, asset protection, structure around distributions, liquidity at major life transition, others . . . Many individuals are tasked with acting as trustees of these trusts- why might that be a bad idea?  Are Individuals qualified to understand the legal requirements of a trustee and the vagaries of the insurance industry? Making sure all Crummey letters are sent and the trust complies with all other formalities- Making sure all timely premium payments are made- Making sure the policy continues to make sense for the trusts’ beneficiaries and is performing- What is the best practice for reviewing insurance policies?   Confirm who actually owns the policies and whom the beneficiaries are- you’d be surprised at the mistakes! Where does the policy stand? Is it funded? Are there any loans against it? Are there useful in-force projections to analyze the policy? Has it been stress tested? How is the performance of the Insurance Company? Any issues with capitalization to be considered? How often should policies be reviewed? Every year? Every few years? How does the trustee make sure the approach around insurance is handled in a consultative manner (as opposed to being designed to generate another sale?) How does one stay in touch? STUERMANN CONSULTING ANDREAS STUERMANN on LINKEDIN https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Puerto Rico is a jurisdiction that excites the imaginations of wealth planners. It has interesting attributes for American citizens that other non-U.S. jurisdictions don’t. For instance it is the one place that American citizens can greatly reduce their Federal Income tax liability without having to renounce their citizenship. This has generated an enormous amount of interest. There is good reason for that interest. 2020 and 2021 have thrown a lot of uncertainty at wealthy families trying to arrange their affairs. A worldwide pandemic, relative electoral chaos, an explosion of wealth in some sectors of the economy, the targeting taxation of the wealthiest families and all sorts of legislative uncertainty have foretold increasing tax and compliance burdens for most people. With the chatter of Puerto Rico as a magic pill, I thought it was necessary to find out more about the benefits, the requirements, the traps for the unwary, and the best practices in using Puerto Rico as a jurisdiction for wealth planning. Enter MARIA DE LOS ANGELES RIVERA, Tax Partner in Grant Thornton’s Puerto Rico office. In her role as tax partner, Maria engages in the design and development of tax planning and consulting strategies. This includes tax services in the area of mergers and acquisitions,business reorganizations, partnership transactions, tax incentives and exemptions, individual and corporate tax issues, personal financial matters, and others. Mrs. Rivera is a summa cum laude graduate and holds a bachelors degree in business administration from Catholic University of Puerto Rico and holds a Masters degree in publicaccountancy from the University of Texas at Austin. She is an expert in the ins and outs of Puerto Rico and a terrific resource as we dive into this topic. Below is an outline of our discussion. Of particular use to those who want to dive into the details is a link to GRANT THORNTON’S 2021 PUERTO RICO TAX AND INCENTIVES GUIDE. This is extremely helpful in starting a Puerto Rico relocation analysis. (As with any tax planning, an analysis of an individual situation with the requisite legal, accounting, investment and business advice is mandatory- this podcast is for educational purposes.) INTRODUCTION Maria’s background and tax training. OUTLINE Puerto Rico is getting a lot of attention as a planning situs for US Citizens- why? Expatriation “lite”?  For U.S. Citizens that are willing to give up citizenship for tax or other reasons, they usually have to pay a hefty exit tax. In Puerto Rico, with the right structuring, you can maintain U.S. citizenship with reduced federal tax liability (with no expatriation tax). It’s not as easy as just renting a place and “moving down there”. What kind of analysis should prospective “re-locators” go through? What are the family implications? What about thoughtfully leaving your previous state of residence? Benefits Personal Taxes- What are the benefits?  Tax Savings at the Income, Capital Gains, and Estate Level. Business Taxes- What are the benefits for people locating their businesses there? What are the parameters? Geography and Business features of Puerto Rico Personal Tax Benefits What is required?  The Presence Requirement- -Physical presence (Annual proof of living in P.R. for 183 Days +, what is the home purchase requirement?) -Tax home presence – where you work from? -Closer connection – where do you “live”? How do you prove it? -Is there planning to think about during the year of the move? Forms?) -What are the requirements for those who are anticipating a significant capital gains event? Business Tax Benefits ? What is the general rule for whom this could work for? What are the traps for the unwary? -Recordkeeping -Audit risk -What actually qualifies? -Best practices- what should someone do if they are thinking about this route? OUTRO How do we stay in touch with Maria and developments in Puerto Rico’s taxation climate? GRANT THORNTON PUERTO RICO MARIA’S LINKEDIN PROFILE Useful links from Grant Thornton on the Benefits and Requirements of Puerto Rico Jurisdiciton https://www.grantthornton.pr/insights/kevane-grant-thornton/puerto-rico-tax-and-incentives-guide/ https://www.grantthornton.pr/insights/kevane-grant-thornton/articles/08.15.18-tax-article-update-to-the-federal-qualified-opportunity-zone/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/