Anne Bucciarelli and Emily Neubert of Bernstein Private Wealth Management work with wealthy families on everything from investment planning to multigenerational-wealth transfer to philanthropic planning. Part of their expertise lies in planning and executing family retreats. Bucciarelli, senior national director of family engagement, responsible for wealth management research; and Neubert, director of family governance, discuss the nuances of what it takes to make a meaningful event come to life.
The integration of a family retreat can be transformational for some families. How do you begin that conversation with families about starting them?
It really starts with helping families understand what we mean when we say "family meeting" or "family retreat"; that although they may spend time together eating dinner or taking a vacation, the conversations that happen during these times are often more casual, and people can get distracted because there is a lack of structure. So we redefine what a "meeting" or "retreat" is — it is an opportunity to achieve a specific objective in a focused atmosphere. We also stress the importance of gatherings from an educational perspective and to establish and reinforce trust, strengthen relationships and instill values in the rising generations.
Once the purpose and benefits are understood, we begin discussing the specific needs and relationship dynamics of the family.
What do the details look like when creating a family retreat?
We recognize that every family is in a different starting place with regard to planning a family retreat or assembly. We take an active role in defining the purpose and specific goals of the retreat, shaping an agenda, coordinating and securing the appropriate subject matter experts, and setting family expectations.
For smaller families, meetings and retreats can be shorter and less formal. But as the family evolves and grows, the complexity of the retreats should keep pace with the family's evolving needs. In cases where a family office exists, it often helps organize and plan logistics for family gatherings. Key considerations for planning a family meeting or retreat can include:
- An outline of any specific problems that need to be solved.
- Changes and decisions that need to be made.
- Plans for an upcoming transition.
- A check-in with family members and a feedback gathering process.
- A celebration of milestones and achievements.
It is important to allow enough time for planning because organizing a family meeting or retreat doesn't happen quickly. But families can leverage the planning process as another opportunity to build relationships and bond with each other.
Can you share an example of what one type of family retreat can look like?
In smaller families, an individual can take the responsibility of planning, and as the family grows, a small group of family members typically own the logistical planning. Logistics can include evaluating who needs to be present and what the meeting objectives are. In cases where there is a representative body making plans, a best practice includes polling the broader family for ideas and agenda topics and allowing the broader family the opportunity to provide feedback prior to finalizing the agenda.
Agendas can include a combination of education, family business discussions (if necessary), philanthropic planning and family bonding activities. These can be accomplished in one day for less complicated situations or span multiple days for larger, more complex families.
The same rationale applies for the timing of gatherings. We recommend families gather one to two times a year. As families grow, there may be shorter one-day gatherings more frequently throughout the year, or annually, and a longer two-to-three-day retreat every other year.
Successful agendas often include as many social activities as any other activity. Agenda items can include welcome dinners, icebreakers to welcome new members, shareholder meetings, breakout sessions that cover family and business history, current challenges and philanthropy discussions.
Families also hold retreats for a specific reason. For example, a family we work with holds a "newly wed" weekend when there is a concentration of new members marrying into a family. These can be a great opportunity to introduce new members to the family values, the family business and how the family works together and makes decisions. A retreat like this reinforces relationships across family branches and is a fun way to clarify where opportunities exist for spouses versus lineal descendants.
When deciding on a location, success comes when retreats and assemblies become "special outings" for the family. Choosing an interesting location can boost participation, and family members are excited to join. Often, when a family still has an operating business, the family retreat is held on-site or in the same city or town as the headquarters. This offers the opportunity for families to tour the business facilities on a regular basis.
At what age should families think about including young children in the retreat?
This is really specific to the family and understanding the different types of participants that may be present. Are they shareholders of a family business? If so, at what age do they gain ownership? While younger children may not participate in the formal shareholder meetings, having them in the vicinity of discussions can increase transparency and reduce uncertainty, bettering the chances of creating future stewards. Hearing certain terminology can help develop skills they'll use to integrate family values into their day-to-day and establish a foundation for future involvement. Being around family they don't see very often also builds and strengthens relationships. Most important, kids can see adults navigate difficult conversations, disagree, have conflict and then move on, knowing they remain a family.
How can children be integrated into family retreats in a meaningful way?
Families can use the meeting or retreat to focus on developing savings plans for allowances, learning about family and/or family business history or for incorporating them in family philanthropy discussions. The gatherings can be a great place for them to learn about different charitable causes they might be interested in supporting.
Overall, finding the opportunity to include them builds the kids' self-esteem by giving them a voice, ensuring they know they are a valued member, and it is great practice for everyone to be open to new ideas and perspectives. One family we work with is planning a “day in the life” session with the teenage children, where they will sit in on a curated portion of a board meeting happening during the retreat. This will offer the children a chance to experience the important decisions that are made and the responsibility expected of the board members.
How is success measured after the event is over?
Regular, effective meetings ultimately lead to better-functioning families over time. When done well, they lead to better communication techniques and a deeper appreciation for the benefits of healthy conflict. Family members develop new talents, learn from each other and figure out how to work with each other, and the broader family gains a stronger sense of the family's history and values.
At the start, family meetings can be awkward. But over time, the process becomes more ingrained and each one more valuable. Having an outside partner to help facilitate the family retreat and ensure effective follow-up can be helpful for many families.
Logan Roy's estate planning problem
By DAVID FERRARO JR.
Spoiler alert: I’ll be discussing the climactic ending of "Succession." If you are still working your way through the series, I would suggest saving this article for later. If you’ve not yet watched the show, be forewarned that you’ll hear some of the most colorful and creative expletives in television history.
Now that my Sundays at 9 p.m. are free once again, I can’t help reflecting on HBO’s latest award-dominating series, "Succession." For the uninitiated, the show revolves around Brian Cox’s character, Logan Roy, the founder of media empire Waystar Royco and a character not-so-loosely based on Rupert Murdoch. In life and in death, Logan was a complex individual. A dissertation could be written about topics ranging from Roy family dynamics to negotiation tactics displayed throughout the series. However, I’m going to focus on a narrower topic not deeply covered on the show: Logan Roy’s estate settlement.
Over each of the show’s four seasons, Logan enticed three of his ill-equipped children to vie for the position as his successor. In the end, Kendall takes the lead, only to be usurped by brother-in-law Tom Wambsgans, as Waystar Royco is sold to the Nordic tech company GoJo. As Kendall meanders through Battery Park defeated, the sad reality is he probably never had a chance. Though the most difficult outcome for Kendall to accept, this was almost certainly the best financial outcome possible. Not because of the eldest boy’s lack of capability or many indiscretions, but because there is a tremendously large estate tax bill that needs to be paid.
Logan’s stake in Waystar Royco was estimated by internet sleuths to be around $20 billion. Add to this a portfolio of impressive real estate, a mega yacht, aircraft, works of art and collectibles of an additional $1 billion, and you have a taxable estate of at least $21 billion (see table below). Using a mix of internet sleuthing and personal estimates, I put together a rudimentary balance sheet below. In the real world, it would likely be vastly more complex than what is displayed.
We can safely assume that Logan was a proactive planner and had already fully utilized his $12,920,000 lifetime exemption in prior wealth transfers to his children. With New York as his domicile, Logan’s estate would be subject to an effective estate tax rate of 49.6%, bringing the total tax bill just north of $10.4 billion. (Fun fact: This would need to be paid in 105 separate checks, as the IRS does not accept checks over $100 million.)
While we are unaware of Logan’s liquidity profile, he would have needed over $20 billion of liquid assets or life insurance proceeds inside his estate to satisfy the tax liability on $21 billion of illiquid assets, for a total estate of $41 billion. It is almost inconceivable that there would be enough cash available to pay the tax authorities without liquidating a significant portion of the company.
What’s more is the estate tax bill is due just nine months following the date of death. This is a tight turnaround to scramble together an 11-figure sum, particularly with the complexity of selling restricted shares of a closely held public company.
WHAT CAN BE DONE?
Though magnified for the Roys, the challenge of adequate estate liquidity is a familiar one among business-owning families. One tool the IRS permits is a Section 6166 election. Internal Revenue Code 6166 allows for the estate to defer payment of the federal estate tax for four years and pay in installments for an additional 10 years. To qualify for this election, the following requirements must be met:
- The decedent was a U.S. citizen or resident at the time of death.
- The closely held business was an active trade or business.
- The value of an interest in a closely held business exceeded 35% of the decedent’s adjusted gross estate.
- Notice of election is made on a timely filed estate tax return.
So far, his estate seems to have passed the four-part test, though you may be asking yourself, “What constitutes a closely held business?” For a C-corporation like Waystar, an interest in a closely held business is defined as stock in a corporation with either 45 or fewer shareholders, or 20% or more of the voting stock is included in determining the decedent’s gross estate.
We don’t know exactly how much of Waystar Royco’s voting shares Logan owned. Season 2, Episode 7 revealed that the Roy family controlled a combined 36% of the voting shares. Again, I will assume that Logan would not have ceded significant control of the enterprise to his children, thus retaining at least 20% of the voting shares. Having passed each of these tests, the estate gets the luxury of time to source the needed liquidity. This does, however, come at a cost. The IRS assesses a statutory interest rate on the deferred taxes, which is likely preferable to selling the assets at unattractive values or abruptly relinquishing control.
How could the heirs use an illiquid estate to get their hands on desperately needed cash? Unfortunately for the Roys, unless the estate can find a generous lender, there is likely no getting around selling a significant portion of the estate’s Waystar position. Naturally, selling over $10 billion of a single stock position would likely take several years to accomplish. First, it can take several months to go through the legal process of preparing the shares for sale in the public market. Further, it is advisable — and many brokers require — that no more than 10% of the stock’s daily volume of shares be sold on any given trading day to avoid influencing the market price.
This could be further complicated based on who is serving as trustee/manager of the entity that owns the shares. If Logan’s longtime confidant and Waystar Vice Chairman Frank Vernon, or any other company insider, is serving in this role, sales can only take place during open-window periods when he is not in possession of material nonpublic information. Frank could implement a Rule 10b5-1 plan during an open window to make sales on a periodic basis, but those sales cannot begin for at least 90 days after execution of the plan, following the amendments adopted by the Securities and Exchange Commission this past December. Good thing we made that 6166 election!