Sandi Bragar is the chief client officer at Aspiriant and leads their planning, strategy and research team. The group is responsible for the firm’s wealth planning platform, which fosters client relationships and helps families navigate the complex facets of their financial lives. She also co-hosts Aspiriant’s “Money Tales” podcast.
What family governance issues do you come across?
If a family is planning for asset transfers or they’re already in motion, then it’s really helpful to have these governance issues worked out. A decade ago, in the work that we’d be doing with families, we identified some great opportunities for them to transfer assets out of their estate to the next generations and to manage their tax exposure.
Sometimes the rising generation of the family hasn’t had the opportunity to be steeped and educated in what the mission of the family is. The governance aspect helps to get all the family members on the same page and empowers them, including the younger generations.
If they’re fearful of sharing with the rising generation, there is a lot to dig into to better understand what their fears and concerns are. Resentment can come up and confusion when a family member is curious about something and they don’t know the answer.
You start to wonder, and if the family is not talking about it, it creates tension. It’s human nature to make assumptions, and often we make incorrect assumptions. You might get a little anxious: “Will this wealth and lifestyle be always available to me? Do I need to focus on generating wealth?”
How do you advise parents to bring up these conversations with their kids?
Between the younger generation and older generation, these same types of conversations are extremely helpful. Are the parents supported financially? Do they have enough of their own resources to cover their needs? And as you look down to the rising generations, how do we want to financially parent the young generation so they are developing the skills and competencies they need to not only make good financial decisions for themselves but also for the family?
Often we’ll start with the parents and advise them on how to bring up these conversations with clients. A family I’ve been working with for decades, parents with two adult children, their net worth is over $100 million. The parents had been very fearful to share info with the kids. They have multiple homes; the kids have had challenges in their own lives. The parents had set up some trusts, and the kids were starting to receive distributions at age 25 and at age 20. We said: “Let's look down the road. The kids don’t know about the trusts; there’s an opportunity here to educate them on why you set up the trust, about budgeting, finances. The parents didn’t want to be part of the conversations. They wanted us to set them up because they were concerned that they’d be too influential, and the kids wouldn't feel as comfortable.
We were able to have conversations with these adult kids — what questions do they have, what were they observing? We went back to the parents and said we should have a family meeting with everyone in the room. We went back to the kids, and they said that sounds great. We interviewed the parents and the siblings separately and came up with a proposed agenda. They were not comfortable talking about overall wealth but about the estate plan — what to expect and what not to expect. That’s how we framed it. No dollars involved. The kids walked away developing more confidence and feeling better about themselves. They were brought into the tent, so to speak. That was just the beginning,
How important is family collaboration?
Family collaboration and joint decision-making. Family history is one of the important things that we want to celebrate. In that same family, the husband has been so stoic, very rational and not emotional. In this first meeting, he was brought to tears because we were talking about some history, his experience growing up, he didn’t have wealth growing up. Emotions and vulnerability came up. Our job is to create a safe space so that they can feel vulnerable, feel heard by each other.
What we are trying to do is help the family build those muscles and the vocabulary to build the trust. Some families have a hard time communicating with each other, so we bring in a family dynamics coach. There can be triggering words; and we always start off with ground rules, encourage family to create their own ground rules, to allow some respect.
Who can help guide a family through this process?
Family wealth dynamics coaches can be really helpful, estate planning attorneys or different types of attorneys who can go deeper. That is a part of the family governance process — roles and responsibilities, to understand theirs and their team of advisers. Is there an adviser that’s missing? It could be a property manager. Sometimes, to educate the family or to take on the responsibilities of the family, delegating to a third party can be helpful when there are tensions.
Family history, culture and mission — identify what that culture is and what are the values collectively of that family and how do they get expressed in the decisions the family makes. We utilize storytelling a lot, to make observations from the story.
Family culture can be that they have dinners together, they have a text chain that they use all the time, going to sports games together. Culture can be really important when the family gets to an age where they’re expanding — how are you bringing these new family members into the family? Spend a lot of time with families cultivating their family capital — beyond just the financial and social capital, intellectual and human capital, experiences they are bringing from their careers, what is their spiritual legacy capital.
I was meeting with a family, and they have a now-deceased relative who was the wealth creator of the family. This deceased relative, who’s been dead for 30 years, was still talked about on a near-daily basis. How do we preserve that and bring that into the decision-making that the family is making? Why is his impact still important, what do they want the rising generation to know about this member? It can be too dominating. That’s another opportunity to see what works and what doesn’t work. We’re trying to get rid of the elephants in the room.
Busting 5 common myths about changing your domicile
By ALLEN INJIJIAN
It is our observation that wealthy people are moving out of high-tax states, such as California and New York. Particularly for high-net-worth and ultra-high-net-worth individuals and families, where you live can impact your tax obligations and overall net worth over time.
When you look at the data, the trend is clear. For example, West Palm Beach, Florida, saw a 90% increase in millionaires living in the city from 2012 to 2022, while Miami experienced a 75% increase over the same period. Those two cities are No. 2 and No. 4, respectively, on the list of the fastest-growing U.S. cities for millionaires.
So what is causing this acceleration of families of wealth seeking to change domiciles? In my opinion, there are two primary contributing factors:
First, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct state income tax for many wealthy individuals, making it particularly painful from a tax standpoint to continue living in high-income-tax states.
Second, COVID has encouraged many people to reevaluate how and where they want to live their lives. The answer for many has been to move to a low- or no-income-tax state that fits their lifestyle.
To be sure, changing domiciles is a topic that comes up more frequently among families of wealth, especially those who are approaching a potentially significant taxable event, such as selling a business. With all the interest, many lingering misconceptions about changing your domicile persist.
Below are five common myths and the realities behind them:
1. I have to spend at least half a year and a day in a low-income-tax state to qualify as a resident.
That is false. Don’t focus on where you are; focus on where you aren’t. It’s more important to spend less than half a year in the state you do not want to be domiciled in than it is to spend more than six months in the state you do want to domicile in. For example, let’s say you want to move out of New York and become a resident of Florida. If you spend three months living in New York and then four months living in Florida and five months traveling through Europe, you could qualify as a Florida resident, even though you didn’t live there for more than six months. As long as you went through the necessary steps to treat Florida as your true home, you would still be considered a Florida taxpayer, even though you spent less than half a year there.
2. All state auditors are the same in how they investigate (or audit) residency.
That is also false. There is a significant discrepancy in how aggressively residency audits are pursued in different states. For example, states like California and New York have triggering rules that can result in an aggressive audit, whereas other states are far more relaxed. It’s important to know how aggressive the state you plan to leave — or at least not domicile in — is when determining the likelihood of an audit. Moving out of a state before you sell a business could still result in a sizable taxable event in certain circumstances, for example.
3. If I move to another state before I sell my business, I won’t have to pay taxes on the sale in my former state of residence.
It depends on what you are selling. If you are selling an “asset,” those assets may have a “home” for tax purposes. In the tax world, we call this having a tax “nexus.” Things like property, real estate and equipment all have a state of residence. But “equity,” such as stock or a partnership interest, doesn’t have a “home.”
For example, if you have a real estate business, and you move from one state — let’s say California — to Nevada and then choose to sell, you would likely still owe California income tax on the sale. You may not live in California anymore, but your business still “lives” in California, at least according to state auditors. Alternatively, if you own stock in a company that is headquartered in California, and you sell that stock after living in Nevada for two years, you would not owe California income tax, as securities generally don’t have a tax nexus.
As you can see, the tax consequences depend on the type of asset you plan to sell.
4. The tax consequence isn’t “that big” if I stay in my current high-income-tax state.
Sorry, the reality is the long-term impact of reducing or eliminating state income taxes by moving to a low- or no-income-tax state can amount to millions of dollars for wealthy families over many years. Based on Geller’s tax projections for various families, we’ve concluded that some of our very own clients could save upward of tens of millions of dollars over a few decades. Over time, the power of compounding by saving 5% to 10% on state income taxes is absolutely a big deal for families of wealth.
5. They’re never going to catch me if I “fudge the truth” a bit on where I’m living.
Don’t try this. Technology today makes it much harder to mislead state auditors about where you are actually living. For example, just having a cellphone makes it easy for states to monitor where you are to establish residency. All an auditor has to do is look at the ad history on your phone or look at the cookies in your browser to determine where you have been at any point in time. In essence, it’s much harder to get away with trying to “game the system” when it comes to establishing residency. Be honest and straightforward. Doing so will make any potential audit much less painful.
This material is provided for general and educational purposes only, is not intended to provide legal or tax advice, and is not for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other adviser regarding your specific legal, investment or tax situation.