Private Client Insights Newsletter Issue #1 2020




2 The Fallout from the NEW TAX LAW Joseph Giampapa & Russell Ephraim 5 MAXIMIZE YOUR CHARITABLE CONTRIBUTIONS to Minimize Your Tax Liability Jennifer Leelaviwatana 8 SUCCESSION PLANNING: Tax Considerations When Exiting Your Business Dannell R. Lyne 10 Did You Make a Taxable Gift in 2019? Don’t Overlook GIFT TAX FILING REQUIREMENTS When Funding Trusts Christopher D. Wright 13 The Future of FAMILY OFFICE TECHNOLOGY Dean Nelson 15 LEVERAGE OUR EXPERTISE

Welcome. Welcome to the inaugural issue of Marks Paneth’s Private Client Insights , our new newsletter providing you with advice and guidance on matters related to tax planning, trusts & estates, and multigenerational needs. As the Partner-in-Charge of the High-Net-Worth Group at Marks Paneth, I appreciate the many individual, family and business challenges you face in this highly dynamic environment. Our motto is “Success Is Personal,” and this newsletter is one of the many ways we seek to be a resource for you as you navigate these challenges to achieve success. Tax planning is always top of mind for our clients – as well as for us. As I survey the tax world today, I take to heart the lessons learned after the first full year of the Tax Cuts and Jobs Act, despite the political uncertainties as we enter this election year. Regardless of what the future holds, we will continue to be right by your side, developing strategies and recommendations to help you protect your assets and accomplish your goals. I welcome your questions and comments on how any of the insights in this newsletter will affect you, and look forward to providing additional informative and topical content in upcoming issues.




T wo years ago, we were scrambling to secure deductions for all our clients before the Tax Cuts and Jobs Act took effect. Uncertain about most of the nuances of the new law, the one thing we were sure of was the elimination of almost all state and local income tax deductions. Our focus was on prepaying real estate taxes, as much state income tax as possible, and finding ways to prepay 2% miscella- neous itemized deductions. Fast forward to

a year later, and we were figuring out, along with the government, how Sections 199A and 163(j) were going to affect our clients. As the 2018 filing deadlines have come and gone, we can now look back at who was affected positively and negatively, and who was not affected by the new law at all. Is there anything we could have done bet- ter? How should we move forward knowing what we have learned after the first full year of the Tax Cuts and Jobs Act? FEBRUARY 2020 Private Client Insights 2


were already losing their entertainment deductions on the business side as well as their personal itemized deductions. Our clients who qualified for the 199A deduction did receive a nice deduction, but what about 163(j)? Did the limitation on business interest have the effect that we expected? There is no question that there is an effect of losing a deduction outright. However, most of the interest that our clients pay in the high-net-worth space is investment interest. In addition, due to the uncertainty of how to report the limitation, the interest could be limited at the entity level, and we have no way of knowing for sure what the effect really was. In the future we may see these code sections have the opposite effect on our clients than we saw in the first year of the new law. We have a lot of clients who are generating business losses for Section 199A businesses. These losses need to be used to offset 199A income in future years, thereby reducing the benefit received from the deduction. As discussed above, the 163(j) interest may be locked up at the entity level. The release of this deduction when investments are sold off in future years could bring unexpected deductions. It is important that we keep all of this in mind going forward, as it becomes increasingly difficult to project tax liabilities as the law becomes more complicated. It didn’t take the Tax Cuts and Jobs Act to increase the amount of foreign reporting that taxpayers have been burdened with over the last decade. The majority of the tax compliance work that needs to be completed for our high-net-worth clients consists of the one-time Section 965 transition tax and, going forward, the Global Intangible Low-Taxed Income (GILTI). The Section 965 tax had little warning and there wasn’t much that could be done to avoid it. Now that we have the GILTI regulations and have filed our first year of tax returns with the GILTI income inclusion, is it what we thought, and can we plan for it? As with anything in tax, it depends. After receiving final regulations, it is now clear what we need to include in income and the options that we have to FOREIGN REPORTING

The most obvious negative effect and the one we saw early was on our ultra-high-net-worth clients who reside in New York City. With a state tax rate of almost 13%, it’s easy to see they are losing a huge deduction with the loss of state and local income tax, as well as real estate tax deductions on their New York City apartments along with their other homes. Did reducing the top rate to 37% – a reduction of 2.6% – help these taxpayers? No. With $23 million of $36 million of adjusted gross income being ordinary income, taxed at the highest rate, we saw one of our wealthiest clients lose a $7.5 million state income tax deduction. That caused a 6% increase in tax including the 2.6% rate deduction. That’s $2 million of additional tax. A similar taxpayer scaled down to $5 million of adjusted gross income did not see the same effect, however. The rate reduction was enough to offset the loss of itemized deductions. It may have seemed as if these taxpayers were still writing large estimated tax payment checks during the year. The withholding table changes affected deferred compensation and bonuses just as the withholding tables affected their children’s W-2 wages. Even if a bonus is withheld at the top rate, it doesn’t cover the amount of qualified income taxpayers have become accustomed to. The top rate has gone down, but the qualified income rates have stayed the same. DID INTRODUCING NEW DEDUCTIONS AND LIMITATIONS HAVE THE EFFECT WE THOUGHT? Initially we were disappointed that the 199A deduction didn’t apply to service income. I think we still are disappointed. However, some did benefit from the deduction despite being in a service profession. When the real numbers for 2018 were finalized, we got a chance to see the true effect on our clients. After taking deductions into account, we did end up having service professionals who received some advantage from the 199A deduction, not only through their main source of income but also through their investments. This was a relief for some of our smaller clients who FEBRUARY 2020 Private Client Insights 3


reduce the tax. Through hedge fund partnership investments, we cannot do much beyond avoiding investments that create additional tax. This is hard to quantify for our clients in a diversified investment, but we can make them aware of the additional tax and compliance required. U.S. shareholders of controlled foreign corporations (CFCs) can try to reduce their ownership, so their investment is no longer considered a CFC. The taxpayer can also increase the amount of fixed assets held in their CFC to increase the qualified business income (QBI) deduction allowed to reduce GILTI income. Under certain circumstances we have and will continue to make the Section 962 election to tax GILTI income at the corporate rates as if the client were a corporation. This only works for certain circumstances, but it is important that we are aware of our options.

The Tax Cuts and Jobs Act dramatically increased the amount of calculations and reporting that is required for our clients. It is a mixed bag on whether they saved tax or are paying significantly more. For the most part, there are savings in certain areas that are offset with an increase somewhere else. A few lucky individuals reap the benefits of the new law and don’t have to deal with the burden of additional limitations and reporting. The future will tell us the true effects, and we can continue to refine how to navigate the new law. It is more important now than ever to review the items we can affect and plan for the ones we cannot.

Joseph Giampapa, CPA , Partner-in-Charge of the High-Net-Worth Group at Marks Paneth LLP, has extensive experience providing tax planning, preparation and consulting services to high-net-worth individuals, partnerships, corporations, estates, trusts and private foundations. He can be reached at or 212.201.3165.

Russell S. Ephraim, CPA, MST , a Tax Director in the Private Client Services Group at Marks Paneth LLP, provides tax preparation and advisory services to both small businesses and individuals. Mr. Ephraim specializes in federal and multi-state tax preparation for investment and operating partnerships, trusts and estates, and foundations. He can be reached at or 212.710.1758. FEBRUARY 2020 Private Client Insights 4

Maximize Your Charitable Contributions to Minimize Your Tax Liability JENNIFER LEELAVIWATANA, CPA

S ince the enactment of the Tax Cuts and Jobs Act of 2017, taxpayers are limited to a deduction of up to $10,000 of state and local income tax- es. Without the ability to deduct the full amount of their state and local income taxes, most taxpayers do not have enough deductions to itemize. In addition, under the Appropriations Act of 2020, medical expenses are only deductible when they exceed 7.5% of taxpayers’ Adjusted Gross Income (AGI). However, charitable contri-

butions can still have a powerful effect on minimizing taxpayers’ tax liability. CASH IS KING Taxpayers can receive deductions up to 60% of their AGI when donating cash to charity and can receive deductions up to 50% of their AGI when donating certain noncash contributions such as clothes, house- hold items, capital property (stock), artwork, etc. For taxpayers who contribute cash and capital property together, the overall limitation is 50% of their AGI. Charitable contributions that exceed the AGI limitation will carry forward for the following five years. FEBRUARY 2020 Private Client Insights 5

For example, John and Jane, a married couple filing jointly, have a total of $1,000,000 in AGI for the 2020 tax year. John made a pledge to a local charity in the amount of $100,000 to be paid out over five years. John has an option to start his pledge in 2020 or 2021. Jane inherits money and stock in early 2020 and contributes cash of $100,000 to a local charity. Jane also donates stock worth $200,000 to a local charity and $200,000 in cash to her private foundation. John decides to postpone his pledge until next year since Jane is making a large gift in 2020. However, a capital property donated to a personal private foundation is limited to 20% of taxpayers’ AGI. As Jane donated stock to her personal private foundation, the deductions are limited to 20% of her AGI. Therefore, John and Jane can deduct $400,000 of the total $500,000 on their 2020 tax returns and carry forward $100,000, or 20%, of their charitable contributions to the 2021 tax year. LIMITATION ON $1,000,000 AGI JANE’S DONATION 60% limit - $600,000 $100,000 cash to a 50% qualified charity 30% limit - $300,000 $200,000 stock to a 50% qualified charity 20% limit – $200,000 $200,000 stock to a non-50% charity The first limitation (limited to 60% of AGI) is cash to a 50% qualified charity, the second limitation (limited to 30% of AGI) is stock (capital property) to a 50% qualified charity and the last limitation (limited to 20% of AGI) is stock (capital property) to a second category qualified charity. In this case, the last $200,000 donated to Jane’s private foundation will be limited to $100,000, as the combination of the stock donation to the 50% qualified charity and the second category qualified charities cannot exceed the $300,000 limitation. The carry forward amount of $100,000 of the 20% deduction can be used for the following five years. WHAT ARE THE QUALIFIED CHARITIES? IRS Publication 526 explains how to claim a deduction for charitable contributions and provides a list of qualified charities, which are also sometimes referred to as 50% limit organizations. 1. Churches and conventions or associations of churches. 2. Educational organizations with a regular faculty and curriculum that normally have a regularly enrolled In general, a capital property that is donated to a qualified charity is limited to 30% of taxpayers’ AGI.

student body attending classes on site. 3. Hospitals and certain medical research organizations associated with these hospitals. 4. Organizations that are operated only to receive, hold, invest and administer property and to make expenditures to or for the benefit of state and mu- nicipal colleges and universities and that normally receive substantial support from the United States or any state or their political subdivisions, or from the general public. 5. The United States or any state, the District of Co- lumbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. 6. Publicly supported charities. 7. Organizations that may not qualify as “publicly supported” but that meet other tests showing they respond to the needs of the general public, not a limited number of donors or other persons. They must normally receive more than one-third of their support either from organizations described in (1) through (6), or from persons other than “disqualified persons.” 8. Most organizations operated or controlled by, and operated for the benefit of, those organizations described in (1) through (7). 9. Private operating foundations. 10. Private nonoperating foundations that make qualify- ing distributions of 100% of contributions within 2 1 ⁄ 2 months following the year they receive the contri- bution. A deduction for charitable contributions to any of these private nonoperating foundations must be supported by evidence from the foundation con- firming it made the qualifying distributions timely. A copy of this supporting data should be attached to your tax return. 11. A private foundation whose contributions are pooled into a common fund, if the foundation would be described in (8) but for the right of substantial contributors to name the public charities that receive contributions from the fund. The foundation must distribute the common fund’s income within 2 1 ⁄ 2 months following the tax year in which it was realized and must distribute the corpus not later than one year after the donor’s death (or after the death of the donor’s surviving spouse if the spouse can name the recipients of the corpus). FEBRUARY 2020 Private Client Insights 6

HOW IS GIFTING CAPITAL GAINS PROPERTY TO A PERSONAL PRIVATE FOUNDATION TREATED? Since a personal private foundation is not listed as a 50% limit organization, it falls under a “second category of qualified organizations.” When taxpayers make noncash contributions of capital gain property during the year (1) to an organization under this category or (2) “for the use of” any qualified organization, their deductions for those contributions are limited to 20% of their adjusted gross income. Note the “for the use of” contribution exception. A 20% or 30% limit applies to noncash contributions that are “for the use of” the qualified organization instead of “to” the qualified organization. A contribution is “for the use of” a qualified organization when it is held In the example above, if John changes his mind and starts contributing toward his pledge in 2020, since Jane has already met the 30% and 20% limit, he would benefit most from a tax standpoint by contributing $20,000 in cash. As a result, John and Jane can deduct $420,000 on their 2020 tax returns. If John prefers to donate the first installment of his pledge ($20,000) to a 50% qualified charity using his stock, the limitation will be as follows: in a legally enforceable trust for the qualified organization or in a similar legal arrangement.

Since John and Jane’s stock donation to a 50% qualified charity is $220,000, they are only allowed to deduct $80,000 of capital gains property to the second category qualified charities (limited to 20% of their AGI). Their 20% charitable contribution carry forward to 2021 will be $120,000. The crucial question is how much tax liability does $420,000 of charitable contributions save? It depends on John and Jane’s tax rate. Let’s assume their marginal tax rate is 37%. $420,000 of charitable contributions will decrease John and Jane’s tax liability in 2020 by $155,400 ($420,000 x 37%). Keep in mind one other incentive to use a long-term capital property as a currency to donate – taxpayers receive a fair market value at the time of the donation and do not pay taxes on any unrealized gains. Thus, most taxpayers choose to donate stock with large unrealized gains. CONCLUSION Most taxpayers are able to use 100% of their charitable contributions up front. Depending on the size and character of the donation and the amount of AGI for that year, taxpayers may incur carryovers that can be used over a number of years (but not exceeding the five-year carryover limitation). Thus, it is imperative to understand how carryovers are being applied on your tax returns and to work closely with tax advisors to ensure that tax benefits are maximized for a large gift given to charity.


DONATION $100,000

60% limit - $600,000 cash to a 50% qualified charity 30% limit – $300,000 stock to a 50% charity 20% limit – $200,000 stock to a non-50% charity



Jennifer Leelaviwatana, CPA , Partner in the Private Client Services Group at Marks Paneth LLP, provides key tax planning and consulting services to high-net-worth individuals, closely-held businesses, estates and trusts and clients in the real estate and professional

services industries. Ms. Leelaviwatana can be reached at or 212.201.2993. FEBRUARY 2020 Private Client Insights 7

Succession Planning: Tax Considerations When Exiting Your Business DANNELL R. LYNE, CPA, MST

T here comes a time when business owners begin to contemplate retire- ment and an exit from the company they own and/or are operating. This is when succession planning should begin. For those in larger companies, it may be easier to identify talent already within the company to take the reins. However, this may not be

the case for those who are in smaller, close- ly held businesses or who are sole owners. For these types of owners, in addition to determining how to pass on their business, they must understand the tax ramifications of transitioning the business. This article will discuss a few exit strategies and the tax consequences to consider. FEBRUARY 2020 Private Client Insights 8


gain income during the transition period and long- term capital gains during the buyout period once the transition period ends (provided there are no assets that would lead to a recognition of ordinary income as a part of the sale). Also, consider how the business is going to be sold. Will the seller sell only the assets of the company, while keeping the company in existence from a legal stand- point and subsequently dissolve at a later date? Will the exit be a sale of ownership interest (e.g., stock, partner- ship interest, LLC units)? Depending on the structure of the business, most sales will result in a taxable event. However, owners of businesses held as corporations may be able to have the gain on the sale excluded. If an individual owns qualified small business stock (QSBS) (i.e., stock received by the taxpayer at its original issue) and has held on to it for at least five years, 100% of the gain can be excluded. The 100% exclusion applies to QSBS acquired after September 27, 2010. QSBS acquired be- fore will be subjected to an exclusion of 75% (acquired between February 17, 2009 and September 27, 2010) or 50% (acquired before February 18, 2009), so please keep this in mind when considering this as a part of your planning. In conclusion, these are just a few items from a tax point of view to consider when engaging in succes- sion planning. Speaking with your tax advisor will help you determine the most effective and beneficial ways to prepare.

Some owners would prefer to sell and immediately exit the business. This would be the case when selling to another company that is knowledgeable about that industry or to a member of management, an approach that would ensure a smooth and seamless transition. Realizing the tax treatment from a sale like this will de- pend on several factors. In some cases, the seller may decide to take a lump sum payment, and the sale will generate long-term capital gain taxes at 20% on the federal level. However, if a business contains hot assets (ordinary income-producing assets, such as accounts receivable and inventory) as part of the sale, then an ordinary gain would have to be bifurcated from the long-term capital gain and taxed at ordinary rates up to 37%. This can occur in the year of the sale or over a period of time, usually three to five years. Another option when exiting a business would be to stay on during a transition period. Typically, this period lasts from one to three years and gives new owners time to understand and know their new customers/ clients and vice versa. The exiting owner could be paid as a consultant during this transitionary period, which would yield ordinary income, and then initiate the buyout agreement, which would yield long-term capital gains after the transition period. Yet another alternative would be a combined payment of the consulting and buyout agreements. The exiting owner would recognize ordinary and long-term capital OTHER APPROACHES

Dannell R. Lyne, CPA, MST , Partner in the Private Client Ser- vices Group at Marks Paneth LLP, has extensive experience in tax planning and compliance for family owned businesses, nonprofit organizations, al- ternative investment funds and high-net-worth individuals. He specializes in serving executives in the financial services industry and investment partner- ships and in handling international matters. He can be reached at dlyne@ or 914.909.4952. FEBRUARY 2020 Private Client Insights 9

Did You Make a Taxable Gift in 2019? Don’t Overlook Gift Tax Filing Requirements When Funding Trusts CHRISTOPHER D. WRIGHT, JD, CPA

2 020 is here, which means it is time to gather your 2019 tax information and consider any actions you took in 2019 that will impact your tax filing. Did you make any gifts over the course of the year? Many of us give our kids, relatives and friends birthday and holiday gifts. Maybe you gifted your son or daughter with some cash to help with the purchase of a house or new car. If these gifts to an individu- al total over $15,000 ($30,000 if you are married and gift-splitting), you will need to

inform your friendly CPA and file a gift tax return. While cash gifts of this nature are fairly straightforward (as are their impact on tax filings), there is an often-overlooked instance of the gift tax that has the po- tential to generate quite a headache come April—funding a trust. HOW IS FUNDING A TRUST CONSIDERED A GIFT?

You may be asking, “I transferred money to a trust, not my children, so how is that a gift? ” The answer is that it FEBRUARY 2020 Private Client Insights 10

depends. Was the trust a revocable trust or an irrevo- cable trust? Transferring assets to your revocable trust is not a gift—because you still have total control over the assets in a revocable trust (and can therefore revoke it at any time), the funding is not considered a completed gift as you did not really give it away. In the case of funding an irrevocable trust, however, the outcome and necessary steps are completely different. In most cases, transferring assets to an irrevocable trust will be a gift for gift tax purposes 1 . One of the key issues to consider when making gifts to a trust is, does that gift qualify for the annual gift tax exclusion? This depends on whether the trust contains what are known as Crummey withdrawal rights. Do some or all of the beneficiaries of the trust have the right to withdraw some or all of the current addition to the trust within a specified time period? If they do, then the transfer to the trust is considered a present interest gift and each withdrawal right holder qualifies for the annual exclusion. Example: Jerome has created an irrevocable trust for the benefit of his two children. The trust agreement provides that in each year in which an addition is made to the trust, both children have the right to withdraw up to the annual gift tax exclusion amount within 30 days. In 2019, Jerome transferred $30,000 to the trust. Since each of his children has the right to withdraw up to $15,000, the gift to the trust will not be a taxable gift as it falls under the annual exclusion amount. However, a gift tax return should still be filed to report the gift to the trust and that two annual exclusions are applied to the trust. What if, in addition to the above $30,000 Jerome transferred to the trust, he also gave each child $10,000? The total gift deemed made to each child is now $25,000, and Jerome has made a $10,000 taxable gift to each of his children. This will result in the utilization of $20,000 of Jerome’s lifetime exemption (currently $11.4 million). Now, let’s consider a scenario where Jerome’s children do not have a withdrawal right. The gift of $30,000 to the trust would now be considered a “future interest” gift and does not qualify for the annual exclusion. 2 The entire $30,000 would be a taxable gift and use $30,000 of Jerome’s lifetime exemption. What if the trust also has the descendants of Jerome’s children as

beneficiaries? Well, all of this would be further compli- cated! The addition of a second generation to the class of beneficiaries has Generation Skipping Transfer (GST) implications, as the trust now has skip and non-skip beneficiaries and may be a GST trust. 3 The significance of a gift to a GST trust is that it is potentially subject to both gift tax and the GST tax. While the gift may qualify for the gift tax annual exclusion, it may not qualify for the GST annual exclusion. 4 This means that while the gift may not be subject to gift tax, it will be subject to GST tax. Under current law, there is a separate lifetime GST exemption of $11.4 million. It is separate from the gift and estate tax lifetime exemption. Gifts made to GST trusts are considered indirect gifts, and as such are subject to automatic allocation of the GST lifetime exemption unless an election to “opt out” of the allocation is made on a timely filed gift tax return. Not making this election out of the automatic alloca- tion rules can lead to unnecessarily using a portion of the GST lifetime exemption. This is particularly true of Irrevocable Life Insurance Trusts (an ILIT). In general, most ILITs are drafted so that the primary beneficiaries are the spouse of the donor or the first generation. However, the grandchildren are often also potential beneficiaries of the trust, thus causing the trust to be a GST trust, with any gifts to the trust being subject to the GST automatic allocation rules. Example: Jerome has created an ILIT for the benefit of his children and grandchildren. Under the terms of the trust, the primary beneficiaries are his children, and they will ultimately receive the proceeds of the life insurance policy outright upon Jerome’s death. The grandchildren of Jerome are contingent beneficiaries should his children predecease him, after the trust is created. The trust creates withdrawal rights in both the children and any grandchildren at the time of the addition. Jerome contributes (or pays directly) an amount sufficient to pay the premium on the life insurance policy owned by the trust. The annual premium is $45,000. Jerome has two children and one grandchild and is not gift splitting with his husband. Jerome has made no other gifts.

At first glance, Jerome might think he has not made any taxable gifts because, as discussed earlier, the trust FEBRUARY 2020 Private Client Insights 11


is assigned three annual exclusions, one for each withdrawal right holder. This is correct for gift tax purposes, but since the ILIT is a GST trust, and the addition to the trust does not qualify for the GST annual exclusion, the transfer to the trust is subject to GST and the automatic allocation rules. If Jerome does not file a gift tax return, $45,000 of his lifetime GST exemption will be automatically allocated to the trust. This is using GST exemption when there would have been no GST implications upon the death of Jerome. Since the intent of the trust is for Jerome’s children to receive the life insurance proceeds outright at his death, that distribution from the trust to his children would not be subject to GST tax as they are not skip persons. The only way for Jerome to avoid the GST exemption being allocated to the trust is to timely file a 709 and elect out of the GST automatic allocation rules. By doing this, there will be no taxable gift tax, because the gifts qualify for three annual exclusions and no GST exemption will be allocated because he elected out of the automatic allocation rules.

When you are determining what gifts you made in 2019, ask yourself the following questions: 1. Did I make gifts totaling more than $15,000 to any individual, charity or trust? 2. Do I have an irrevocable trust in which I made additions? 3. Did I pay the life insurance premiums on a policy held by a trust? For most taxpayers, the events in #2 and #3 would not immediately cause them to think of filing a gift tax return. However, if the answer to any one of these is yes, there will be a gift tax return filing requirement. Knowing this ahead of time can make things much easier for you and your tax advisor when filing time comes. Understanding the ways in which funding a trust can impact your current year taxable gifts and the utilization of your lifetime exemption for both regular gift and GST tax is very important. Speak to your tax advisor to ensure that any funding of a trust is reported correctly for gift and GST tax purposes.

1. There are instances when transfers to an irrevocable trust will not be gifts because the grantor has retained incidence of ownership or control that would cause inclusion in the grantor’s estate upon her death. In this case the transfer is not considered a completed gift and no gift has occurred for gift tax purposes. 2. In order for a gift to qualify for the annual exclusion, it must be a present interest gift. A present interest gift is one where the donor has no ability to take the gift back and there are no restrictions on the use of the gift by the donee. 3. The classification of a trust as a GST trust is very complex; generally speaking any trust that has more than one generation as potential beneficiaries is a GST trust. There are numerous exceptions to this rule. 4. In general, most GST trusts do not qualify for the GST annual exclusion, even if there are withdrawal rights in the second generation beneficiaries.

Christopher D. Wright, JD, CPA , Tax Partner in the Private Client Services Group at Marks Paneth LLP, focuses on estate planning as well as gift, estate and trust taxation. Mr. Wright is especially adept at working with clients and other professional advisors to develop custom- ized estate plans to transfer family businesses and wealth to the next generation and to charitable organizations. He can be reached at or 212.201.2258. FEBRUARY 2020 Private Client Insights 12

The Future of Family Office Technology DEAN NELSON

T echnology options for family offic- es are more numerous than ever. For example, artificial intelligence is helping family offices bridge the talent gap. Family offices are starting to leverage data to transform their operations. And most of them are moving to the cloud and away from on-premise software, not relying on data centers any longer. In addition, established technology providers like Microsoft, Advent and CCH are disrupting this underserved community. With so many options available, how do you select the right technology solutions for your family office? Mak- ing the right strategic choice is critical. It is important

to develop a technology strategy that is aligned with your business objectives, and to think about how tech- nology can enable you to achieve those objectives. You should spend the right amount of time selecting the right technology, which should be grounded in your technology strategy. Think about how you view your business processes today and what they will look like in a few years. How can you drive manual activities out of the process? How can you leverage technology to drive efficiencies? What are the key business requirements important to you as you select a new application? Focus on what is unique to your organization and how you can innovate.


A best-of-breed system is defined as the best system developed to address a specific niche or functional FEBRUARY 2020 Private Client Insights 13


area. The application performs specialized functions better than an integrated system. So instead of trying to find a software solution that is comprehensive, many organizations are implementing best-of-breed systems in multiple functional areas and linking them together. Moving to a best-of-breed solution is a viable option and not as costly as it used to be. The key is understanding your data strategy and having a good grasp of where your data sources are, as well as how clean that data is. Artificial intelligence (AI) is key to any technology strate- gy. Family offices are increasingly leveraging technology to retain talent. AI has the potential to greatly improve applicant vetting and intelligently match candidates with jobs. Utilizing AI, you can obtain massive amounts of data from resumes, skill assessments and employment history forms, enabling you to identify the best available candidate for each job placement. The business of the family office is becoming more complex, and investment opportunities are increasing. AI can help automate manual data entry efforts and reduce errors. For example, you can utilize AI to gather tax information and input it in your tax forms. By taking greater advantage of AI, you can increase efficiencies and reduce errors, put resources to use in more val- ue-added activities, and enable your people to focus on mission-critical activities. ARTIFICIAL INTELLIGENCE

Leveraging data can help transform organizations. With so much data available today, how do you make sense of it? One way family offices can leverage analytics is to reduce the monthly reporting process. Think about how to implement analytics solutions to automate monthly data-gathering efforts. This has greatly transformed how organizations look at enterprise reporting and how they use analytics to help solve problems and make better, faster and more informed decisions. Also, think about where manual processes and pa- per-based processes occur today. This is an opportunity to take a step back and see how you can innovate and improve your processes. There are a lot of technology options available to family offices today. Think about how to leverage them from a strategic point of view. Start with a strategic technology initiative which links to your business objectives. Con- duct a thorough technology selection based on how you do business. Think about how to leverage technolo- gy from an automation perspective to drive out manual efforts and end redundancy. And consider how you can leverage analytics to fundamentally change how you do enterprise reporting. CONCLUSION

Dean Nelson , Principal-in-Charge of Advisory Services at Marks Paneth LLP, oversees the strategic development of the firm’s suite of Advisory Services client offerings, which include Litigation Support; Forensic Accounting and Valuation Services; Trade Disputes and Compliance; Technology Services; Integrated Risk Management; Financial Advisory Services; and Transaction Advisory Services. He can be reached at or 212.503.6358. FEBRUARY 2020 Private Client Insights 14

Leverage our Expertise Our passion for helping high-net-worth individuals succeed in their financial and professional lives is at the core of Marks Paneth’s Private Client Service offerings. We understand that to achieve your objectives, you need much more than an accountant – you need an advisor who knows you. By understanding the people behind the numbers, our Private Client Service professionals are better able to develop plans, strategies and recommendations that address each client’s specific situation and maximize their greatest areas of opportunity. We are there for you and your family to handle the details, provide guidance on your tax and business strategies, and support your goals every step of the way. This personal approach is augmented by our deep technical expertise, regulatory knowledge and decades of experience in tax planning, wealth preservation and transfer, planned giving and family office services. Trusts and Estates • Lifetime gift planning and post-mortem trust and estate planning • Assistance with charitable planning and the creation of charitable trusts and private foundations • Consulting on the creation and administration of family limited partnerships • Assistance in the marshalling of assets and related administration • Preparation of fiduciary accountings (judicial and informal) for trusts, estates and guardianships • Expert witness testimony and related fiduciary litigation support services • Cash flow analysis Tax Planning and Compliance Services • Preparation of tax returns for individuals, partnerships and LLCs • Preparation of corporate tax returns, including C Corps and S Corps • Preparation of estate tax, gift tax and fiduciary income tax returns and related filings • Tax planning and projections • Advising on tax strategies to meet philanthropic goals Our longstanding private client relationships span generations and demonstrate our commitment to recognizing and achieving success for each individual client. At Marks Paneth, we believe your Success is Personal.

• Tax controversy (federal and state tax examinations and appeals) • Preparation of tax returns for charitable trusts and private foundations • Transactional tax planning and strategies • Due diligence in the M&A process Business Management & Family Office Services • Consulting on business transactions and operations • Concierge services • Bill payment and cash flow management • General bookkeeping • Management of personal and family employees • Payroll administration • Assistance with purchases and sales of homes, investments and other assets • Assistance with insurance needs FEBRUARY 2020 Private Client Insights 15

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