Tax Planning

Bg Tax

All good people must take responsibility to create legacies that will take the next generation to the next level.

Jim Rohn

Overview

We consider the full range of tax implications in our work with clients, helping them minimize gift and estate tax exposure while thinking critically about income and capital gains taxes. In addition to advising clients with respect to their individual tax planning, the Choate team has significant knowledge of tax issues affecting trusts and estates. The breadth and depth of our experience allows Choate to help clients integrate strategic tax analysis into their planning to meet their overall objectives.

Client Story:

Navigating an Entrepreneur Family’s First Liquidity Events

Coordinating a Global Family Office

Establishing a Founder’s Legacy for Future Generations

Building a Comprehensive Philanthropic Plan for Search Fund Investor

Administering a Multi-Generational Grant-Making Program

Managing Family Office Transition Across Generations

Establishing a Single-Family Office for Ultra-High Net Worth Entrepreneur Family

Designing a Core Wealth Plan for Ultra High Net Worth Family

Client:
Husband and wife are each scientific founders / advisers to multiple life sciences companies

Challenges:
Each spouse had an interest in a separate company that recently went public, providing the couple with their first significant liquidity events

Solutions:

  • Reviewed insider trading policies and vesting schedules to determine whether clients should implement a 10b5-1 sales plan
  • Formulated and executed a stock sales plan to provide clients with necessary diversification and liquidity, while accommodating low daily trading volume and tax implications of sales
    Provided comprehensive review of financial holdings and goals, and prepared a diversified investment plan
  • Implemented core estate plan, including helping clients purchase real estate and other assets through LLCs that shield family from liability
  • Implemented lifetime gifting plan to create irrevocable trusts for children, and charitable foundation to be run by clients and future generations

Results:
Lifetime gifts saved clients millions in future estate taxes

Charitable foundation provides tax benefits and “glue” that holds older and younger generations together

Choate team provides ongoing investment, estate planning, and financial advice as additional opportunities arise, and family and wealth grows

Client:
Family office with concentration of wealth in public company; access to unique investments; assets in Europe. Prior connection to Choate.

Challenges:

  • No existing estate plan
  • Serious privacy concerns

Solutions:

  • Bring in subject matter experts (PR, philanthropy, high-end real estate, local counsel in foreign jurisdictions)
  • Guide and implement impactful charitable giving through private foundation
  • Quarterback other service providers

Results:
Restructured existing family wealth vehicles for maximum tax and estate planning impact

Developing global philanthropic mission and improve tax efficiency of giving to offset taxable income

Ensuring privacy for the entire family

Client:
Long-time founder and owner of consulting firm

Challenges:
Complex estate planning goals requiring coordination across multiple disciplines

Solutions:

  • Choate Wealth lawyers have implemented sophisticated estate planning, including grantor retained annuity trusts (GRATs), irrevocable trusts, and core estate planning documents that save significant taxes
  • Choate partners serve as trustees and executors with highest fiduciary duties
  • Assisted with a comprehensive evaluation of life insurance coverage
  • Choate Investment Advisors invests liquid portfolio, including exit proceeds
  • Quarterly estate planning & investment calls with the family, including separate “next generation” calls to educate younger family members

Results:
Proactive gift planning has moved significant wealth to trusts for the next generation, tax free

Education curriculum has helped foster the next generation of family investors

Choate Wealth team, together with Choate’s Private Equity group, is helping client explore gifts of stock in next startup at pre-revenue stage

Client:
Very successful search fund investor and his family

Challenges:

  • Leave most of family net worth ($500M+) to charity
  • Ensure truly perpetual impact
  • No existing charitable plan

Solutions:

  • Choate implemented a charitable structure tailored to client’s needs, including a private foundation and a supporting organization
  • Developed and executing a program for annual gifts of privately held investments to charities over many years
  • Optimized charitable gifts of publicly traded stock post-SPAC acquisition while client is serving on the board of directors
  • Choate is serving as a back office for the charities
  • Lead ongoing discussions with family members and other team members about strategy and day-to-day execution

Results:
New charitable entities are up and running

Allow client to focus on desired impact of charitable giving

Client:
Second-generation trustees of a private foundation with a regular grant making program

Challenges:

  • No continuity between first-generation family trustees and second-generation slate of trustees
  • Poor engagement in decision-making process

Solutions:

  • Review historical grant making and documents to identify first-generation trustees charitable intentions
  • In-depth conversations with second-generation trustees to understand charitable goals
  • Met with charities that received grants to determine impact
  • Comparative analysis of similar private foundations and their strategic plans and metrics

Results:
Developed a new strategic framework and key metrics to help trustees understand how their programs make an impact, and modeled key questions they can ask grantees to make informed funding decisions

Challenges:
Long-time legal clients of the firm originally built out their own stand-alone family office. However, as the older generation wanted to retire, and no younger family members were interested in taking over the CEO role, the family recognized that it needed a different solution.

Solutions:
The family hired Choate Family Office to serve as its out-sourced family office, leveraging our 60+ member staff, and our legal, tax, and investment expertise. Choate focused on three key areas to address the family’s needs.

1. Tracking and reporting

  • The family invested in a wide variety of private equity, search funds, hedge funds, real estate, and publicly traded assets. To replace an outdated collection of spreadsheets, we designed and deployed a comprehensive investment tracking and reporting system. Today, family members and staff have real-time access to both consolidated investment reports and tailored net worth statements, as well as visibility into outstanding commitments, distributions, contributions, and changes in asset values.

2. Management of public and private investments

  • Choate developed customized investment portfolios for the family’s estate planning vehicles, including private foundations and family trusts. We developed special investment guidelines for the liquid portion of the family’s investment portfolio in order to complement sizeable private holdings.
  • As part of our ongoing work for the family, we handle the day-to-day administration of their private investments. Members of the family’s Choate team monitor third-party investments and manage capital calls, distributions, cash needs, changes in investment activities, and all related tax matters. We helped the family establish several new investment vehicles in order to efficiently pool family capital and to reward key members of the family and staff in a tax-efficient manner.

3. Tax optimization

  • Our lawyers, tax advisors, and trust administrators regularly perform extensive tax optimization and charitable gifting analysis, resulting in material tax savings every year. This tax analysis is continually updated, ensuring that the family’s charitable giving program is always up-to-date and is positioned for maximum tax efficiency.

Challenges:
An ultra-high net worth family sought to create a brand new family office to help manage its rapidly increasing wealth, fueled by a highly profitable closely-held business.

Solutions:
We were hired to replace a family’s former estate planning attorney, whose expertise struggled to keep up with the family’s quickly evolving needs. We immediately recognized an opportunity to engineer a single-family office from the ground up that was customized to the family’s needs:

1. Create a family office structure

  • We began by creating a legal structure for the new family office, including several investment vehicles designed to pool existing family wealth. These new vehicles – which include series LLCs and special- purpose investment entities – provide a robust framework for pursuing the family’s investment interests. We help with all aspects of vehicle management and compliance, including complying with SEC rules for family offices.
  • This family office model proved to be very flexible, making it possible for the family to quickly deploy capital to take advantage of changes in the tax laws. For example, when the family’s advisors identified an attractive “qualified opportunity zone” investment, it took just a couple of days to fit that asset into the family’s overall investment portfolio in a tax-efficient manner.

2. Help build out a team

  • As the legal work was getting underway, the family was searching for a dedicated person to lead their new family office. Through our network, we helped the family locate a new family office director with an ideal background and the right cultural fit. Filling this critical role allowed the family to create a single point of contact for all family members regarding wealth planning, lifestyle and concierge services, and freed up other team members’ time to focus on their own specialties.

3. Implement high-impact, high-visibility philanthropy

  • With the right support structure in place, the family turned to one of its key priorities: high-impact, high-visibility philanthropy. We helped the family negotiate several “front page of the newspaper” charitable gifts with local institutions, transforming their charitable impact and securing prominent naming rights for the family in perpetuity.

Challenges:
A couple had done very little estate planning and needed help creating an updated plan reflecting their increased wealth, as well as advice on how best to transfer assets to their descendants in the most tax- efficient manner, and guidance on creating a shared family structure for charitable giving.

Solutions:

1. Create a core plan

  • As an initial step, Choate created a core plan for the clients that governs how their property will pass on death and who will make decisions for them if they are ever incapacitated. This plan consists of wills, revocable (changeable until death) trusts, health care proxies, and durable powers of an attorney. With their core plan in place, the clients were ready to engage in lifetime planning for charity and for their descendants.

2. Create a private foundation

  • To facilitate the family’s charitable giving now and into the future, Choate created a private foundation for the parents to control initially, inviting their children onto the board as they aged into maturity. With Choate’s help, the clients use their private foundation as a means of educating their children about investments and the family’s philanthropic goals, introducing the next generation to the family’s wealth in an altruistic environment.

3. Create generation-skipping trusts (which may also benefit the spouse)

  • To reduce the clients’ future estate taxes and leverage large lifetime gift tax exemptions, Choate created several generation-skipping irrevocable trusts for the clients, including trusts funded with gifts of private investments, preexisting and new insurance policies, and liquid assets. The funded trusts are out of the clients’ estates and will save the clients material estate taxes on death. Choate attorneys serve as trustees, subject to the family’s ability to remove and replace trustees at any time. Several trusts include one of the spouses as a potential beneficiary, providing a “safety valve” in case the clients ever feel that they over-gave to the next generation and need assets for their own future support.

4. Introduce additional planning techniques

  • Choate also helps the family take advantage of planning techniques that require no gift tax exemption, such as transfers to grantor retained annuity trusts (or “GRATs”). GRATs transfer the upside appreciation in assets to the next generation, entirely gift-tax-free, while the client retains the original principal. Examples of other tax free planning for the family include creating 529 plans for grandchildren’s education costs funded with annual exclusion gifts and direct payments of medical and tuition expenses for extended family members.

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