Gina Nelson is senior vice president and head of fiduciary services at Chilton Trust, a wealth management firm headquartered in Palm Beach, Florida. She spoke with Crain Currency about creating a road map for estate planning as it relates to midsize family offices, which can often be overlooked.
You often hear about tax planning for smaller family offices and multi-family offices, but midsize family offices fall between the cracks. Can you talk about the unique challenges that they face?
When we talk about planning for midsize estates, the heart of the issue is that these are clients who are borderline taxable. If the [Tax Cuts and Jobs Act of 2017] law sunsets at the end of next year, as expected, they will be taxable. But giving away a big portion of their wealth means that they don't have the assets they need to live out their lives in the lifestyle that they've become accustomed to. When you get really large estates giving away $5 million here, $10 million there, that is not going to impact how they live out the rest of their life. For these midsize estates, it does.
So the tax planning becomes a balancing act between trying to make it as effective as possible but still allowing them to live out their lives. And so maybe we're not taking the most tax-effective approach, but we're weighing that tax effectiveness versus comfort and lifestyle and doing sort of a compromise between those two. So maybe we get some but not as much to make it completely nontaxable.
Can you give me more specifics about situations faced by your clients?
A lot of these people have a lot of their net worth tied up in real estate. And so the qualified personal residence trust (QPRT), they can get it out of their estate at a very reduced rate, still maintain the use of it, rent it after the term ends, rent it back from the new owners.
And then using retirement assets — which I think is one of those things that's sort of underutilized for people, particularly with charitable intent, because if they leave it outright to charity, essentially it's out of their estate, right? So you're going to get the offset via the charitable deduction. I just recently had a meeting with a client in which we discussed a QPRT and using a charitable beneficiary on the IRA. That pretty much gets them out of a taxable estate situation. And it hasn't impacted their lifestyle because obviously, when the first spouse dies, the second spouse is going to have access to the IRA during their lifetime, and then we don't have the potentially taxable event until the second death. And that's been addressed by getting both the home and the retirement assets outside of a taxable situation. I think we look for things that are flexible and things that aren't going to affect them as much during their lives. And if they outlive what they expect to, they're still going to be able to have the assets they need.
What do you consider best practices for planning for these midsize firms?
I think what we're doing a lot of is starting the conversations now. Historically, we've gone through periods before where we have expected tax changes coming. And we know what that ends up looking like. So we know the last part of next year is going to be crazy. Assuming that nothing changes and we are going into a sunset. As of Jan. 1, 2026, people are going to be hustling to try and get trusts into place and get things set up. And attorneys get to a point where they can't get all of that done. So we're trying to start those conversations early.
For example, for clients where spousal lifetime access trusts (SLATs) make sense, but we actually don't have a great feel yet for if we should fund those with $1 million or $4 million, we can go ahead and get this SLAT set up, fund it with $1 million now. And as we get later in next year — and we have a better idea as to whether the law will change, whether it will sunset and what their needs might be — we can just add to it.
What are some things to look for when selecting the right fiduciary?
People have a natural inclination to go one of two ways. One is a family friend or a son or a daughter if they're the responsible kid. We trust them to make these decisions. But what people often don't think about is the position that puts the family friend or the family member in. First of all, most people who don't work in the space don't understand all that goes into administering a trust — the record-keeping, the tax preparation, the decisions that need to be made. So just from an administrative perspective, it's burdensome. More than anything, from a family dynamics perspective, if you have a sibling who has to go to their brother to be able to get money out of the trust, that just creates a natural friction. And particularly if the sibling who's the trustee has to say no.
If a client really wants the comfort of having someone who knows the family dynamic, what works really well is pairing them with the corporate trustee, because they can take the administrative burden and can also play the bad guy, right? We can be the ones who step in and say: "No, I'm sorry. We don't think this is an appropriate use of trust funds." And that allows that familial relationship to not be strained.
And when you're looking at a corporate trustee, you want to look for a trustee whose overall values align with yours, who can make decisions based on your particular family situation and who can be flexible enough to adapt to changing dynamics.