Wealth Actually

We have Mike Monaghan on the show today and covering the “Birth of an ETF.” He’s going to talk about the Founders ETF and its new launch. We’re also going to talk a little bit about what it takes to get an ETF up and running. From a compliance perspective, remember, there’s no guarantee of future performance. https://youtu.be/o-m3PYHKXqk?si=qBaHkJpUt7xgdpjG Transcript of “The Birth of an ETF” 00:00 The Founders ETF Frazer Rice (00:00.986)Welcome back, Mike. Michael Monaghan (00:02.616)Frazer, it’s great to be back. Frazer Rice (00:04.4)You are at an interesting point in time right now. You’re about to start up Founders ETF and I think you’re about to get trading authorization to get going. Maybe tell us a little bit about the process to set up an ETF. Then we’ll dive into the strategy a little bit. Michael (00:21.25)Yeah, absolutely right. We should start trading on the SIBO Thursday, so two days from now. And we’ve launched our first fund, the Founders 100, that owns the 100 best founder-led companies. I’d be happy to go through some of the process that it takes to set up an ETF. Frazer Rice (00:40.014)Love it. ETFs are the main way to go now in terms of getting an inveestment cvhicle up and running. What has your experience been around? The Popularity of the ETF Structure Michael (00:52.014)Yeah, so ETFs have become the primary investment vehicle for a few reasons. Let’s outline those reasons. Then we can go through some of the steps that it takes to set up an ETF. So on the advantage side of an ETF, they’re typically a bit lower cost than traditional mutual fund products. Importantly, they’re tax advantaged. So there’s no gains or losses that occur during the normal ETF growth phase. Everything that happens within the ETF is done with what’s called an authorized participant. So you do exchanges. And so there’s no capital gains that are assigned to the investors. As long as they hold the ETF, a tax trigger only occurs when they actually sell the ETF. Finally, it’s a great way to get exposure to the market. So whether you want to own a broad market index, one of the legacy indexes, or a vehicle like ours. That gives you in one single trade, rather than having to guess who’s going to win. Is Nvidia going to win or Palantir who’s going to win? You can own a hundred of the best winners in the market in one single stock ticker. In our case, FFF. Frazer Rice (02:07.364)So let’s dive into that theme a little bit. As you said, it’s the top hundred founder led companies. First and foremost, public I assume, private, you’re not diving in those waters. Public vs Private Michael (02:20.59)Correct. So these are the hundred best publicly traded founder led stocks. And we generally fish from the 200 largest founder led publicly traded stocks. So a lot of these are names and founders that are very well recognized. Whether it’s Elon at Tesla or a Mark at Metta, Larry at Oracle, Rich Fairbanks at Capital One. These are all very well known founders. They’re great entrepreneurs who are leading highly scalable, very high performing publicly traded stocks. 02:53 Understanding Founder-Led Companies Frazer Rice (02:53.914)So let’s define founder a little bit. Obviously we have sort of the cult of personality around high-end CEOs. It sounds like you’re identifying companies that have been founded. The people who are running them not only founded them, but they scaled them. They have now gotten them to a level of maturity. That’s different from the typical public company that we find in the S &P 500. Definition of Founder Michael (03:19.104)Yeah. So first let’s define a founder. Then let’s talk about why we think the founder led companies outperform a traditional S&P company. We define the founder as being a chief executive leader. It could be chief executive officer, could be chief technology officer. Sometimes that say a scientific or medical company, would be the chief scientific or chief medical officer. And that person conceived and founded the company, took it from zero to one. It’s their imprint that has guided it over its 10 or 20 or 30 year period. That’s taken it from a small private company to a venture backed company to a large publicly traded company. And so the idea being the person that founded it continues to run it to this day. We talk about the fact that we own an Nvidia that Jensen still runs. But we don’t own Intel. We own Meta because Mark still runs it, but we don’t own Google. We own Dell computer because Michael Dell still runs it. But we don’t own Apple. We own Capital One because Rich Fairbank still runs it, but we don’t own American Express. Investment Process Frazer Rice (04:25.86)Got it. So lots of things to get into here. How does it a company get on your radar screen? And then ultimately, how does it get off of it? Michael (04:35.806)Great question. the getting on the screen is fairly mechanical. We look at the 200 largest by market capitalization founder led stocks. So we look at all U.S. listed. So it could be listed on the New York Stock Exchange or NASDAQ, but it has to be U.S. listed. We then look at the 200 largest. And from there, we select the 100 best using a quantitative factor model. So I’m have a Sanford Bernstein background and so do some of the folks here. And so for folks who are familiar with Bernstein’s research, we use a Bernstein factor model to pick the best, the hundred best names out of the 200 largest. That’s how they get on our radar. And to get off is quite simple if they retire. So if a CEO announces he’s retiring, per the prospectus, we have 90 days to sell the stock. once we, so for example, Mr. Buffett recently stepped down from Berkshire Hathaway. And so we sell Berkshire Hathaway on his announcement and no longer own the stock. Frazer Rice (05:38.0)things like corporate mergers or divestitures or maybe even a reclassification of stock where the founder stays on in some capacity but their decision making has been reduced. How do you analyze that? 05:54 The Investment Strategy Behind the ETF Michael (05:54.326)Yeah, so there is some human overlay judgment calls here and the founder has to be an executive officer leading the company. So they can’t just run a division. They can’t just be chairman of the board. They have to be the executive in charge of running the company. Frazer Rice (06:14.0)And if for, I guess one of the exits possibly would be if, and I don’t know if this is even possible, but if NVIDIA were to take over Meta and there isn’t room for Jensen and Mark in the same suite, how do you analyze something like that? Michael (06:34.253)So in the business combinations where you have two founder-led companies or a non-founder-led company swallowed up by a founder-led company, as long as an original founder remains, it remains in the portfolio. So we’ve had some stocks that had, say, three to four co-founders. And as long as one of those co-founder remains, it remains in the portfolio. Voting Shares Frazer Rice (06:58.352)So one of the things that’s a bee in my bonnet is the concept of having shares where, in a sense, they’re super majority or voting components and then shareholders that have less decision making authority to act as a check and balance around the company. Is that something you’re not really that worried about or is it something that may be a factor that’s important later on? Michael (07:24.525)So we actually think that’s one of the opportunities that this exists. Like one of the things that we haven’t talked about yet is why is all this alpha there? Why is this uncaptured alpha there for us to go get? And we think historically in the past, active money managers have sometimes shied away from these founder led companies because to your point, Frazier, oftentimes the founder has managed to have super voting control, 10 to one shares, 101 shares. So they completely control the company. And some of these larger active money management complexes have said, well, we as the shareholder, we need to be able to have a vote and we’re going to underown these stocks. We have the opposite view. We think these founders are special. So we think that by the time a Mark or a Elon has driven their company into the public markets, they’ve showed that they know how to set the vision, ruthlessly execute and generate value for the shareholders. Concerns? And so we’re not concerned by super voting structures. Oftentimes those are the stocks that we want to own because it’s the founder that’s in control and setting the direction of the business and generating high returns for the shareholders. We view it as you either believe in them and you own the stock or you don’t believe in them and sell the stock. We’re not interested in other people’s getting on the board and monkeying with the decisions of the founders. Frazer Rice (08:30.255)Is this it? What is it about the founders, especially for those that go from zero to one, then to scale, and then to shepherding a mature business? What makes them better and what drives the alpha that you’re trying to seek? In terms of putting together a portfolio of these types of companies? 09:01 The Importance of Founders in Business Michael (09:02.891)Yeah, so the great ones tend to be a bit irreverent. They tend to be highly visionary. They tend to be charismatic communicators and relentless in their execution ability. They’ve got a great ability to pivot if a change needs to be made. And rthe moral authority to set a tone to generate very high rates of return. We see it sort of over and over and over in these founder led companies. And if you look at some of the studies that we’ve done. There’s a study that Bain Capital, Bain had done years ago in combination with Harvard Business Review, founder led companies tend to outperform non-founder led companies in say the S &P 500 by 3X. So it’s this personality type of high vision and high execution tends to drive outsize returns. And it’s a bit of a self-selecting process. What makes Founders Unique? If you think about it by the time any of these founders that we own or talk about have got to the public market. They first had to identify an opportunity to go after. They had to develop a great product by listening to their customers. And they’ve shown that they can scale all the way from a series A round, B, C, D, all the way investing and generating high rates of return in the private markets. Transitions of Founders to Executives They get to the public markets, continue to do that. And now you get a little bit of an effect of a echo of that, of now all of sudden you’re in the public markets. If you get enough scale, you have this highly effective business. Now you’re getting relatively cheap capital that you’re feeding into your business through the public markets. And now you continue to grow. Frazer Rice (10:42.096)Just to summarize at least what I’m hearing is that they’ve gotten to the point of becoming public. They’ve been able to say no to losing control in exchange for either putting some liquidity back in their pocket or otherwise moving on. And so they’ve almost ratified their vision and message and they keep going. And by the fact that they’re public, there’s enough liquidity for everyone else out there in terms of their investments. So it ends up being a win-win. Michael (11:11.157)I think so. That’s what we see. Frazer Rice (11:13.316)So one thing that I’ve been sort of reading about and thinking about is the concept that the number of public companies is becoming less, well, it’s decreasing, and that many people are able to stay private for longer. Do you worry that your universe is going to get too small to provide sort of a canvas for your ideas here? 12:02 Market Trends and Future Outlook Michael (11:37.549)Let’s talk about three phases of that. We don’t, we actually see the data showing that there’s more and more opportunities within founder led. So let’s look at history and then let’s move to the future. So historically, probably about the time you and I joined the securities business, they would actually take the, to your point, they would take the founder, they would kick out this charismatic founder. They would put in some mid-level proctor or GE middle level manager to be the you know, the suit in the room to take the company public. And that was sort of in the late nineties and people figured out that wasn’t such a good idea. So if you actually look at the chart, there’s more and more founders staying and leading their public, their, their publicly traded companies. That’s number one. Number two. Yes. We have seen some companies stay private, obviously Stripe, SpaceX, but we are now seeing, for example, SpaceX coming to the public markets. Eli is talking about coming next year. so we, we haven’t seen it so far impact the pool with which we can fish in. And as I mentioned, that’s what we saw historically. Public Markets and the Future In the future, think, Frazer, I think we’re going to start to see a conversion of public and private markets, meaning these private mega cap companies have liquidity. And I think that you’ll see more and more ability to trade those stocks almost in public liquidity. So I think these two markets are converging. So I think that Not only do we have plenty of founders in the traditional public markets, I think that the liquidity and the big privates is going to converge to a public market style shortly anyway. Frazer Rice (13:13.232)You’re in a curious time as far as launching an ETF around this concept. I know a lot of people are wary of Mag-7 and ultra valuations and issues related to that. How do you respond to that concept that a lot of the growth has taken place in seven, maybe seven out of the hundred that you’ve chosen? Debunking the Mag-7 (to the Mag-3) Michael (13:33.356)Yeah, so that’s a misconception. We see Mike Saylor get on TV and wave his arms around it, but it’s not really true. First of all, what’s interesting, if you tear apart the Mag-7, it’s actually the Mag-3. The outperformance in the Mag-7 has come from Meta, Tesla, and NVIDIA. So it’s not just the Mag-7, it’s a founder led. And now you say, well, that’s a small sample set. Let’s look at a bigger sample set. So if you look at the NASDAQ 100, for example, It’s actually the 20 founder led companies have driven most of the outperformance over the last 25 years. And what I’m about to tell you about the S &P 500 probably won’t surprise you. It’s the 37 founder led companies that have driven most of the outperforming the S &P 500. So the outperformance is coming from founders, not from any specific part of the market. And one of the things that we think is great about this ETF is to avoid concentration. 14:50 Risk Management I know you’re really familiar with the concept of active share and that’s how different you are than the S &P 500. We have an 85 % active share to the S &P 500. So if you own the founders 100 ETF, you have much different exposure to the market than say the S &P 500. And so we think it helps reduce some of that concentration. We’ve done some things to make sure that we are diversified. First of all, we do own 100 stocks. Diversification So really good diversification across that. And then number two, while we run a market weight portfolio, we cap. No stock can be bigger than 7 % of the portfolio, so we don’t get out of balance at any point. So we think that we mitigate some of those concentration risks and we allow people to invest in innovation without being over concentrated to any one name, say the MAG-7, for example. So we think that we’re giving our investors really good exposure to innovation through the founders, but not exposing them to pre-existing market concentrations. And then finally remind everyone It’s not the MAG-7, it’s not the NASDAQ-100, it’s not the S &P-500, it’s the founders within each of these are what are driving the outsized performance in those analytical groups. Frazer Rice (15:36.218)So from a diversification standpoint, obviously not everything in one name, the 7 % cap you described, do you have sector concentration guidelines as well? Michael (15:45.749)We don’t have sector concentration guidelines, but if you look at the nature of the portfolio, we were fairly well diversified. We’re slightly overweight tech and financials versus say the S &P, but we own healthcare stocks, own consumer stocks, we own energy stocks. So we’re giving you a broad exposure to the market. Leverage Frazer Rice (16:05.924)Let’s talk about leverage for a second. I know a lot of people are trying to juice returns by piggybacking off of other people’s money on that front. Does that have a place in your ETF? Michael (16:17.004)So there’s no leverage in the ETF. We sort of believe in get rich the slow way. I like to tell people that it’s very hard to make money in the stock market over the short term, but it’s not particularly difficult over the very long term. think Mr. Munger and Mr. Buffett used to talk about this. the idea being, leverage can impact you in times that are not favorable. So we believe in just owning the stocks unlevered, let them compound over very long periods of time. And we think that by doing that, we and our shareholder, we think our shareholders can generate wealth over very long periods of time. Taxes Frazer Rice (16:54.98)So tax efficiency, the concept of holding period, does that play into your process at all? Michael (17:04.316)So remember within the ETF, as long as you’re managing your trading properly within the ETF, there’s no tax implications inside of it for your shareholders. Your shareholders only would be impacted at selling. So assuming they hold the stocks for over a year, any gains would be long-term capital gains treatment. Frazer Rice (17:27.024)And when you’re describing the investor profile that you’re looking to attract here, who is this for? Michael (17:35.916)Yeah, so the person that, you we really think it’s appropriate for you if you have a five year or more holding period and you want to have long-term capital appreciation. You know, if your goal is to be exposed to the best minds and public securities, that’s the founder led companies, and you want to compound your wealth over a very long period of time and have a high probability of outperforming the traditional broad market indexes, this ETF is designed for you. 17:59 Investor Profile and ETF Positioning Frazer Rice (18:04.705)And as you’re sort of outlining that profile and for those people who are trying to figure out where this fits in from an equity allocation perspective, you’re in charge in many ways of the spoke of a hub and spoke component of people are really sort of looking at indexes as the base of their equity portfolio. What are you looking for? What kind of benchmarks do you sort of measure yourself against? Michael (18:35.007)Yeah, so we think this is absolutely a core holding. So if you’re looking to build out you or your client’s portfolio, we think this should sit at the core. It is on the growth side, so it’s core growth. We think that it is a one-for-one replacement for, the NASDAQ 100. Or, for example, somebody holding the triple Qs. We think this is a better holding than the triple Qs. So we benchmark ourselves against them and against the S &P 500. Ee look at beating those two broad market indexes, generating better risk return for our investors. Frazer Rice (19:13.019)For those listeners that are out there and want to find out more, what’s the best way that they can either get a hold of you or maybe even better, do you have a ticker symbol ready that people can discover? FFF and Contact Information Michael (19:25.215)Yeah, absolutely. So the ticker is FFF. So that’s the FFF ETF that we’ll trade on. And investors can find that at their favorite brokerage firm, whether they’re Schwab customers, Interactive Brokers customers, Fidelity customers, trades under one ticker, just like a stock. Frazer Rice (19:44.365)And let’s take, we have a few minutes to go here, which is great. Your experience in terms of establishing the ETF, maybe a couple of some of the touch points when you went from vision to execution here, what was the process? Michael (20:00.106)Yeah, so ETF has a few basic processes that are regulated under the 1940 Securities Act. And so a lot of those rules are set up to protect the end investors. So for example, the securities live within a trust. So we set up our own trust. Some people use a mingled trust. We thought it was better for our end investors to have our own trust that we set up that has an independent trust board that oversees to make sure that we’re executing our strategies as we’ve outlined in the prospectus to make sure that we’re Doing the best we can for our investors. You’ve got to set that up There’s a few firms that do the plumbing for the for the ETFs would say US Bank is probably the largest player. So US Bank provides our our fund custody and fund administration and then there’s just a few other vendors in the space that sort of help with all the plumbing to make sure that the ETF runs smoothly. So it’s probably a six month process if you stay really focused to get all of that set up. 20:58 Navigating the ETF Launch Process Frazer Rice (21:03.313)You get that set up, how do you approach the Schwabs and the Fidelitys and the other platforms to make sure that people can access, buy, sell, whatever they want to do with your ETF? Michael (21:14.347)Yeah, that’s a great question. So the online brokerages typically put you on the platform as soon as you’re listed on a major US exchange. So you’ve got to get listed on NASDAQ, NYSE or CIBO. We chose CIBO. So again, on the traditional online brokers, you’re there day one. And then the big wire houses, JP Morgan, Goldman, Morgan Stanley, BAML, they typically have a few hurdles that you’ve got to get through, whether it’s daily trading liquidity assets under management. And over time, as you run the wickets through their process, you’re added to those platforms. Macro Issues? Frazer Rice (21:48.721)We live in a political age and a time when there’s just chaos everywhere, different types of rules in order to allocate capital. If you’re an investor trying to guess what’s happening politically, et cetera, that are difficult, you must be positive as far as the environment for founders to find success in this country and beyond. Is there anything that you’re looking for to make sure that those conditions hold? Michael (22:18.225)Yeah, we don’t really look at the macro or political backgrounds. think over very long periods of time, U.S. innovation outperforms. so we sort of we think that, again, one of the great things with investing in founders is they keep adapting as the background changes behind them. So we think over very long periods of time, the U.S. has great economic growth. And for those people that have worried about little blips along the way, we think the founders are the absolute best at mitigating those blips. Frazer Rice (22:48.334)I like to say you bet against America at your own peril and it sounds like from a founder perspective it’s still a great place for them to locate their businesses and grow them here. Michael (23:01.042)Absolutely. 23:50 Final Thoughts and Contact Information Frazer Rice (23:02.971)Just to reiterate, FFF is the ticker symbol for people to find it. any other contact points for people to find you if they’re interested in what you’re putting together. Michael (23:15.613)Yeah, so we have a great website at FounderETFs.com. can go check out there or anyone’s happy to email me, just michael at FounderETFs.com. Happy to chat with anyone who has interest about the portfolio, the strategy, or what we’re building. Frazer Rice (23:32.197)Well, great to have you back on, Mike. Thank you for putting up with my attempt at looking like Steve Jobs. It’s 25 degrees in New York here, and I am the stupid one who’s not in California or somewhere warm. appreciate you taking the time to be on and talking about your new product. Michael (23:48.011)Yeah, it was great to be on here. Really a huge fan of your podcast and just the level of guests that you’re able to interview and help educate your viewers. Frazer Rice (23:56.849)Mike, thanks for being on. Michael (23:59.061)Thanks a lot, Frazer. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/ Previously with Mike Monaghan ETF EDUCATION ARTICLES ON ETF.COM

Wealthy families are discovering Tennessee’s legal and tax ecosystem as a key component for their long term wealth strategy. I spoke with ANDREA CHOMAKOS from Pendleton Square Trust on Tennessee around these advantages that the Tennessee Wealth Ecosystem provides in the context of other states’ legal systems and economies. We cover directed trusts and Tennessee situs, and even a tip like the Community Property Trust, which is interesting in both prenuptial tax planning and estate planning contexts. https://youtu.be/CiR8eoAG-iI “The Tennessee Wealth Ecosystem” Transcript Frazer Rice (00:00.814)Welcome aboard, Andrea. Andrea Chomakos (00:03.128)Thanks, Frazer, happy to be here. Frazer Rice (00:04.696)Well, glad to have you on. Always happy to talk to friends of mine at Pendleton, talk about Tennessee and trust administration generally. Our listeners are probably pretty well versed as far as the idea of trusts, but I don’t think it hurts to go and talk a little bit about what the trustee function normally entails as we talk about what is interesting about Tennessee and other jurisdictional issues. Andrea Chomakos (00:29.358)Absolutely. So Frazer, it’s great to be here and share some conversation with you and your audience. While I have been in the professional fiduciary role for several years, for several decades before that, I was a practicing attorney. So I would often have conversations with my clients and drafting their documents and asking them decisions about who to appoint as a trustee. One of the very first conversations we would have is what does it mean to be a trustee? As I have now come over to the other side, broadly stating that the trustee has the responsibility to administer the trust for the sole benefit of the named trust beneficiaries in accordance with the trust terms. That seems like a lot of really big words that don’t make a lot of sense to the average person. I get it. When I was practicing, a lot of my clients, their reaction would be, okay, so you’re just telling me that this person is the person who makes the decisions about distributions and that’s great. I can go, you know, no big deal. And the reality is, yeah, the reality is it is a big deal. Because it’s more than just making distribution decisions or making them in a vacuum. You have to look at the broader picture. Frazer Rice (01:41.228)It’s more than that though. Andrea Chomakos (01:55.598)But it also entails managing the trust assets and investments. It means making those important distribution decisions and understanding the impacts those are going to have not just in the short term but the long term. Filing and paying tax returns for the trust. Communicating with trust beneficiaries, providing reports and accounts. And even all of that sometimes seems like not that big of a laundry list but Let me give like an example that I ran into. Everybody loves a good example. So when I say a trustee is responsible for investing and managing all of the assets of the trust, that also means the protection and preservation of those assets. And it’s incredibly common to see a trust hold some real estate, oftentimes a residence that a trustee or a beneficiary lives in. Frazer Rice (02:24.58)That’d be great. Andrea Chomakos (02:51.094)And you may say, OK, well, no big deal. Like if something happens, we’ll just get it fixed. Well, it’s more than that, right? You need to really understand what that means and the risks you’re taking and the potential liability you’re taking if you don’t manage those issues in a way maybe different than you would if it was just your own house. So I was at a prior institution and that institution was serving as co-trustee with a beneficiary who resided in some trust-owned property. And lo and behold, you know, got a call from that beneficiary saying, hey, there was a leak with one of the pipes in the house. So I just went out and got some duct tape and put that around the pipe to stave off the leak, but now it’s gotten really bad. And you’re just sort of like, well, wait a minute. Like that’s. Frazer Rice (03:34.276)Hmm. Andrea Chomakos (03:47.573)As a trustee, that’s not an appropriate response to fixing a leak, it’s not a roll of duct tape. So it’s things like that that trustees are responsible for. Frazer Rice (04:00.004)One of the things too that’s happened in modern legislation is that those three functions you talked about, the investment, the distribution, and the administration have been in many states you’re able to, we like to call it bifurcate them, so that you can put an expert maybe in the investment role, maybe a family member with a corporate trustee in the distribution role, and then a corporate trustee in the administration role who, you know, they’re used to doing the paperwork and the tax filings and the eye dotting and T-crossing. And in your, I guess in your experiences, we’ve gone through that. How have trust companies evolved to take into account this new flexibility? Andrea Chomakos (04:42.254)Absolutely, think you hit the right word. I always say the same thing, Frazier. It’s a bifurcation of those duties and responsibilities. And so there are more trust companies who are embracing what we call the Directed Trust Model, where the corporate trustee is handling the administrative functions. So the reporting, the trust beneficiary communications, filing the tax returns, all of those very important functions, but ones that oftentimes are overlooked, their importance is overlooked. And other people are given the role of either distribution advisor, and sometimes the corporate trustees in these roles will make distribution decisions. But certainly the investment function is one. And as you see arise in individuals, families, using private equity for investments, other alternative investments, you see them using RIAs, multifamily offices, to manage their investments that, and those entities don’t have that trustee function. There are more corporate trustees who are filling that role. And I think that we’re only going to see that market increase and that demand increase. Frazer Rice (06:11.196)I don’t think I could agree more with that statement. I think the idea of people having all of those functions under one umbrella really ignores just the way wealth is being managed these days, whether it’s sort of peculiar assets or even, you know, regular run of the mill stocks and bonds, people have their advisors and they don’t want to necessarily give that up to take advantage of trust situs and professional trustee services. Andrea Chomakos (06:21.998)Listen. Frazer Rice (06:36.524)As I talk to people around this topic, the culture of a good trustee, and especially sort of a good corporate or a good administrative trustee, there are a lot of things that go into that. In your experience, what is it that makes a good sort of corporate or administrative trustee for particular family? Andrea Chomakos (07:01.422)There’s I mean, that’s a great question. And it should be top of mind for all clients. Right. I think there’s a couple of things. One is the institutional professionalism that a corporate trustee, independent corporate trustee provides, as well as the skill, the background and then the lack of conflict of interest. So when you think about an administrative trustee that’s not managing the investments, we have no dog in that fight as they say about what’s going on with the investments, how they’re being managed, how they’re being allocated. We, Pendleton Square and others are here to serve the beneficiaries, to facilitate communication, to help beneficiary wealth education, to continue the continuum of family values and conversations, as well as be some be a person who can sit there alongside them and educate them about the trust, about the wealth, about the impact the distributions from the trust are having on their own estate, on their own lifestyle, and really honing in on the things that they’re really good at. And I think predominantly it is that being free of conflict. We don’t have any other interest in the trust. Frazer Rice (08:28.252)I think the concept of staying in your lane is important. I think in the old world where the big trust companies did everything and they would allocate resources to that because doing everything required good integration and so on, it made a lot of sense. But nowadays, as we talked about the bifurcation just now, the provision of the administrative trustee functions and the distribution committees, et cetera, that feels more like an accommodation. Andrea Chomakos (08:30.913)I’m sorry. Frazer Rice (08:56.696)than a sort of focus for them. And so these trust companies that have developed, the new ones that are less worried about the investment function, that that focus is now a strength in the sense that people hire experts in that field in order to get what they need from an estate planning perspective or a site of choice, et cetera, but then to really effectuate that culture we just talked about. Andrea Chomakos (09:26.956)Yeah, I mean, think there’s a couple of nuances there that you touch on that always resonate with me. And so one is. Trust business, it’s a business, we all have to admit that it’s a business, but is it relational or is it transactional? And at its core it’s really relational. You’re working alongside a family for hopefully multiple generations and as an institution you can carry forward that historic bank of knowledge in the grantor’s intent, the family values as you’re administering the trust. But in many larger institutions, because of just structural considerations and constraints, sometimes you have a lot of turnover in personnel. You have some loss of historic knowledge and information. And you have a compression of what it takes. not just the skills, but the technology and what it takes to execute on trust to meet the needs of the beneficiaries. And so sometimes those decisions get kind of kicked down the road to a committee that maybe only meets once a month or every couple of weeks, since you may not have an immediate decision. having a more nimble corporate trustee who recognizes that and values the relational side of the trust business is… really ideal and really the flip side of the coin I think the thing that a lot of clients and some of their professional advisors advocate for is don’t name an entity name a person as trustee and that’s where I think the staying in your lane part gets really complicated. A lot of opportunity for you know the wheel to drift over to the other lane and Frazer Rice (11:29.816)Well, as you alluded to before, institutions that have a trust capability but have a lot of other things going on, found that, I use the analogy, sometimes the anaconda of maybe the commercial bank or the investment bank finds the sleeping bunny of the wealth management arm and then by extension the trust company. And then you start getting things, start getting business metrics applied to that part of the business that maybe aren’t.appropriate for the 50 to 100 year nature of what’s going on there. Andrea Chomakos (12:00.526)Sure. Yeah, absolutely. And the reality is that the profitability margins in the wealth business in general, and then when you push it down to the trust business in particular, are even close to the margins of financial institution sees from their lending line of business. Because that’s what banks are. Banks are, they’re in the business of lending money, taking in deposits and lending it back out. That’s how they make their money. And so Frazer Rice (12:28.281)Right. Andrea Chomakos (12:30.712)When you look at an institution, whether it’s Pendleton Square or someone else that is solely a trust company, what we’ve said is we know our lane and we’re sticking to it. Because we’re just gonna do it really well. That’s all we’re gonna do. Frazer Rice (12:45.902)So in general estate planning circles, there are lot of favored jurisdictions. Many people know about Delaware, sometimes from the corporate law standpoint, Nevada, South Dakota, et cetera. But Tennessee, especially in the last five to 10 years, has become one of the real top jurisdictions for trust planning and general wealth planning. What are the parts of Tennessee’s attributes, whether tax or legal structure, that makes it appealing these days? Andrea Chomakos (13:15.838)I think there’s a laundry list, Frazier. So as a former state planning professional, I went through an exercise probably about six or seven years ago with a client looking at different jurisdictions for them. Specifically, they wanted to establish some trusts and were interested in going outside of their home jurisdiction, which is a state that does not appear on any of these lists. Frazer Rice (13:41.572)I live in one, so yes, I can empathize. Andrea Chomakos (13:44.663)You really do live in one. At any rate, we briefly looked at Tennessee, we ended up going to a different jurisdiction for other reasons, but let’s start going through the list. And if you even take out specifically what I think Tennessee’s state laws have done well, if you’re a planning professional or a client, these are some of the things that you’re generally gonna look at. Number one probably should be, doesn’t always hit number one, but number one probably should be state income taxes. The state income taxation of trusts is very complex and sometimes it cannot be entirely avoided just based on where a grantor resides, where some beneficiaries reside, depending on each state’s laws, which just FYI to the listeners are not uniform between states and very complex and If you want to have a separate podcast about that, happy to. I talk about it all the time. Frazer Rice (14:43.716)No- I’m, acutely aware of being from New York, which really hamstrings you sometimes on that. Andrea Chomakos (14:46.318)Yeah, no bueno. So, but, you know, Tennessee does not have an income taxation on trust. And when you look at the ability to, and there is the ability in many circumstances to extricate a trust from the tax grips of one jurisdiction and move them out of that, you know, people…overlook the importance of state income taxation. That can be anywhere you’re in a jurisdiction where it can be as high as like 12 plus percent. That’s a big drag on a trust’s return if you’re having to pay out 12 percent every year and just in state income taxes. The next thing that a lot of people look at is how long can this trust last? The legal terminology for that is the dreaded rule against perpetuities. I’m not gonna get into the rule against perpetuities, nobody wants to hear it. But basically, let’s just distill it down, like how long can my trust last? Can it last 100 years? Or 360 years? Can it last indefinitely? For some clients and families, they want to take advantage of that and have that trust last for as long as possible. Because if structured properly, that means wealth can transfer Frazer Rice (15:38.838)I’m getting it. Andrea Chomakos (16:03.886)for an infinite to an infinite number, indefinite number of generations without estate taxes. So Tennessee’s law is a little bit unique and I’ll distill it this way. If a trust is established in Tennessee, the default rule is a 360 year term for the trust. can last for 360 years, which is probably, you know. five to six generations, maybe seven, depending on the longevity of your family line. Frazer Rice (16:37.092)By the way, the US is going to be 250 years old next year for context. Andrea Chomakos (16:41.836)Yeah, that great context. I love it. I love it. So, 360 years. But two years ago, Tennessee modified its statute on this point to say if a trust is moving to Tennessee from a jurisdiction where it had previously been administered, that allows for a longer duration of trust, including an indefinite one then that would be recognized by Tennessee. In other words, you’re not shortening the duration of your trust’s longevity by moving it from a jurisdiction like Delaware that allows indefinite trust terms. By moving it to Tennessee, you don’t lose out on that. Which I think is a really interesting and important point and shows and demonstrates how proactive Tennessee is in updating its trust laws. Frazer Rice (17:36.613)The flexibility that Tennessee gives the practitioner. In terms of being able to decant or modify or change trusts. That started out doing one thing but life evolves, people evolve, the family’s needs evolve, and sometimes these things need tinkering. Tennessee, as I understand it, just continues to have a pretty broad array of tools in the toolkit. Andrea Chomakos (18:00.417)It sure does. I think I’ve been impressed with, as a practitioner who’s licensed in North Carolina that does not have as flexible of laws as Tennessee does. It’s really nice to be able to take advantage of Tennessee’s flexibility to modify trusts. A lot of times just from an administrative perspective to say, hey, This was always at, always anticipated, this trust always anticipated a corporate trustee that invested the assets and handled everything. But now it’s appropriate for us to look at this bifurcated structure we just talked about earlier. In Tennessee, you can do that. You can modify the trust to bifurcate that trustee structure by an agreement of the beneficiaries. You don’t have to go to court. And you don’t have to do anything funky or elaborate to accomplish that objective. Frazer Rice (18:56.396) One of the current bees in my bonnet is around the intersection of post nuptial planning and longer term trust planning. And I know that there’s a community property feature to Tennessee’s law that is interesting in certain components of that. Andrea Chomakos (19:15.278)Yep, absolutely. I think to put in context for folks, a lot of people talk a lot about the estate tax. The reality is that the estate tax exemption has more than tripled in the last about 12 years. And from the time I started practicing law, When I started practicing law, the estate tax exemption amount was $600,000. And it will be $15 million in six weeks per person. Per married, know, spouse and a married couple, so 30 million. For man people, including wealthy people, estate taxes are not as much of an issue as maybe income taxes. And so a lot of… Planners, attorneys, advisors, CPAs are focusing more on income tax planning for clients in concert with their estate planning. And a nuance to the basis step up rule, so people know. When you die and asset is included in your estate, that asset’s basis adjusts to fair market value as of date of death. So that, everyone knows that. For community property, because property that’s classified as community property, it’s considered owned by both spouses. Not like jointly with the rights of survivorship, but more as like they both own 100 % of it. When one spouse dies with community property, it gets a full step up in basis. Even though the spouse inherits 100 % of it. So doing tax income tax basis planning with low basis assets. If you’re not in a community property jurisdiction, which is just a handful of states, you can implement that same benefit. By establishing a community property trust in a jurisdiction like Tennessee. With that trust agreement, you are creating a community property interest in that asset. You contribute it to the trust. The trust terms can provide specifically what would happen if the married couple dissolved their marriage and who would get that asset back. So for instance, if it were a separate property asset, you can contribute the property to a community property trust. The asset to a community property trust and get the full set of a basis. Howver, the trust agreement could provide if the marriage dissolves, that asset goes 100 % back to the contributing spouse. It can address both issues, because a lot of people have that issue, and I get it. Frazer Rice (22:08.361)It’s a nice feature to have. When you’re doing your estate planning or pre/post nuptial planning, it’s a good idea to have both sets of expertise in the room. You can have one document that’s at odds with what you’re thinking is supposed to happen in another document. That creates a real unwind situation. See it. See it all the time. Andrea Chomakos (22:30.869)Mm-hmm. Yes. Frazer Rice (22:33.253)We alluded to some of the things that Tennessee does to stay modern in the trust jurisdiction wars. The Nevadas and the Delawares, et cetera, that make constant revisions. Tennessee stays on top of it as well. Are there any other features that you see in that that are on the horizon or that just taken place? Andrea Chomakos (22:58.35)I’m not aware of anything on the horizon. Another adjustment to the statute late last year, is a provision around grantor, irrevocable grantor trusts. In that situation, the grantor of the trust reports all the tax attributes of that trust on their own personal return. They will have potentially, usually most likely, tax implications from that and tax liability. We estate planners, I still consider myself a state planner, always said like, that’s great. That’s a gift tax free gift, know, paying the grantor, paying the tax on the trust. Assets, but sometimes the grantor gets to a point where that’s a little heavy for them to bear. Many estate planners like myself would not draft a trust to include a tax reimbursement provision. Not in the trust back to the grantor. There had been some IRS rulings that were all over the place about whether that created a problem The IRS has seemed to kind of backed off of that. In particular when there’s an independent trustee who doesn’t have the obligation to make the payments but can in their discretion reimburse the grantor for the taxes. That seems to be a pass muster with the IRS. So Tennessee has now included a statute in their trust code. It tatutorily gives trustees the ability to reimburse grantors for their tax liability. That can be really beneficial for a grantor who’s maybe hitting that pain point. However, she doesn’t necessarily want to toggle off grantor trust status or could not without some other adverse tax consequences. And the trust agreement doesn’t include that reimbursement provision. By resitusing in Tennessee and having the independent trustee, they would have the automatic right to get those tax reimbursements. So, a nice feature for people in those circumstances. Frazer Rice (25:03.319)Nice feature. So as we wind down here. What is the best way for people to find out about Pendleton? Yourself? If they want to know more about the Tennessee features? Or otherwise need a corporate or administrative trustee? What’s the best way to find you? Andrea Chomakos (25:22.85)That’s great question. We have a really nice website, Pendleton Square Trust Company dot com. We have a great insight page which has a lot of this information we talked about. It has a lot of posts and blogs and insights on the Tennessee advantages. I’m listed on there. You can always find me on LinkedIn, Andrea Chomakos, C-H-O-M-A-K-O-S. I’m the only Andrea Chimekis in the world, so pretty easy to find me. Yeah, yeah. So always happy to respond to a reach out either through Pendleton Square. Or through LinkedIn and always happy to have the opportunity to share this great valuable information, Frazeer. Thanks for the really insightful questions. Frazer Rice (25:54.493)There are multiple Fraser Rices in the world, which always surprised me, but alas. Frazer Rice (26:17.925) – The Tennessee Wealth EcosystemThank you. All of your information will be in the show notes. Andrea, thanks so much for being on and say hello to my friends back at Pendleton for me. Andrea Chomakos (26:26.326) – The Tennessee Wealth EcosystemI sure will. Thank you. BUILDING A TRUST COMPANY WITH BETSY BROWN PENDLETON SQUARE TRUST https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Family Office Security with EDWARD MARSHALL, CEO of PRESAGE GLOBAL https://youtu.be/uLbbZg52ABg In this conversation, Frazer Rice and Edward Marshall delve into the complexities of security within family offices, emphasizing the importance of understanding risk as a multifaceted concept. They discuss the vulnerabilities unique to family offices, the interconnected nature of various risks, and the necessity of a comprehensive approach to security that encompasses governance, internal threats, and physical safety. The dialogue highlights the need for families to engage with security experts who prioritize diagnosis over fear-based marketing, ultimately aiming to enhance the quality of life for families through effective risk management. Transcript Frazer Rice (00:01.173)Welcome aboard, Eddie. Edward Marshall (00:03.074)Hey Fraser, how are you? Frazer Rice (00:04.375)Great. Thanks. You are now a member of the two episode club. We’ve got a few of them out there. We one of my favorite ones was with you talking about there is no such thing as the family office, which I thought was a terrific bromide that I bring out every once in a while. It can be controversial depending on who you’re talking to. Edward Marshall (00:23.15)So some people like that and some people hate when I say that, but it’s all good. I mean, it speaks to the whole issues around family offices and I think some of the things that we’ll probably talk about today around security is if you’re defining it so many different ways, we’ve to look at it more as a process than some actual thing that we can put our finger up. Frazer Rice (00:46.421)Well, so security and whether it’s family office or regular high net worth or people generally is foremost in the headlines these days. We had the United Health Care executive who got shot. We’ve got different scenarios of global conflict out there. The theft around financial assets is everywhere. The urgency in the family office space, though, it seems like it’s really taken on a new thing. What is your experience with it? Edward Marshall (01:17.612)Well, mean, I think we could take a look at it from the perspective and start out with this, is risk is really what we deem it and how families and companies… offices and investors are looking at risk, they can perceive it in a lot of different ways. But I think one of the things that are important for high net-worth individuals or family offices is that some parts of their just organizational DNA create these engineered vulnerabilities. So what they are makes them more susceptible. And if you think of it just from the Willie Sutton effect, right? Why do you rob banks? Because that’s where the money is. It’s kind of myopic. Because you have to look at the other factors. What does the family office typically have as characteristics? You tend to have a very lean operation. There tend to be sources of time, line, agnostic capital. They have a lot of trusted relationships. Their customer is the family. And they’re pretty agile. So a lot of those factors come together and make them attractive for bad actors in a lot of different aspects. They could also be politically outspoken, which attracts a different kind of attention to them. And so it is… It’s really an ability to understand the nature of family offices and what makes them attractive for them because they have enterprise level wealth and oftentimes amateur or retail level security and risk management practices and processes in place. Frazer Rice (03:08.009)So how do you get your arms around it? When I hear risk, think, my gosh, you’ve got physical risk, you’ve got technological risk, you’ve got all sorts of other things. One of the frameworks you have is really these 10 domains of risk. And we may not list all 10, but how do you get your arms around it when you’re helping a client think through what their vulnerabilities are? Edward Marshall (03:30.873)Yeah, think the 10 domains of risk that we have put together as kind of an organizational philosophy for Presage Global really harkens to the fact that traditional security, traditional risk management is very siloed. I’ve got my cybersecurity thing that I’m focused on, then I’m focusing on physical security. Unfortunately, risks and threats don’t really respect your self-constructed silos. And that old school mentality tends to lead to lot of whack-a-mole behavior and reactive behavior to these types of risks that come out. So we came up with this framework. The risks range from privacy, technological, reputational, legal, operational, financial, and so forth. And the reason we came up with that is that we were seeing the interconnected nature of risks in this space, whether it’s for family offices, companies, or investors. there’s a lot of interconnectivity between these risks and they can cascade. So something that starts out as a privacy risk, exposed information, a bad tweet, an Instagram post that puts out some information around you can lead, cascade into reputational issues or financial… fraud types of issues or even legal fights depending on kind of the situation that’s there. And if you’re not looking at risk across these different domains, how they interact and really taking a deep dive to assess it, you don’t look at the entire picture. And I think that combined with not just focusing on the shiny object of a technology driven Edward Marshall (05:31.617)approach to solving risk in these issues is important as well. Oftentimes you’ll see folks that work in the security space or people that have purchased something to support them on security or risk management. They’ll say, you know what, we’re doing great because we have X, X software, X tool or whatever it may be. But they haven’t even evaluated if they even need X tool that’s out there or even if X tool is properly configured so you could be spending thousands of dollars hundreds of thousands of dollars or millions of dollars if you’re a company on these tools, but if they’re not properly configured then all that money is for nothing and it’s and And it becomes like security jewelry. We’ve got all this stuff that’s in place. We have cameras that are of X brand and they’re doing all these things. We have firewall that is of Y brand and it’s doing all these things. But if you haven’t properly configured it or the people that are supporting you internally and externally… some of the externally creating supply chain risk there, then it’s all for naught. it comes down, and it’s similar in the work that you do. If you’re not looking at somebody’s entire trust and estate picture just beyond the documents that they’re trying to draft, how do you figure things out? It has to be not just a black and white, here’s a legal document for your trust and estate. It’s part… archaeology, part anthropology, part psychology, multiple other science disciplines and other disciplines that come into it to develop a document, to develop a plan, to have an execution that actually keeps the family safe. Frazer Rice (07:30.315)So when, part of this seems like a real governance issue at the family level or at the family office level. When you see it done well, who owns this task, the security task at the family level? Because I could imagine the Generation One, the matriarch or patriarch, they wanna deal with it, but I’m not sure they’re the best ones to be driving it. What is a good practice there? Edward Marshall (07:58.189)Well, listen, think risk management and security, oftentimes, whether you’re talking about a Fortune 100 company or a family office, is looked upon as a cost center. And I think that’s an unfortunate aspect to it, instead of an enablement factor for you to go and do the things that you want, right? Good security, good risk management for a family should enable the quality and improve the quality of life for that family. If you’re constantly thinking of it, we have to spend X amount of dollars on our cybersecurity or planning for our travel or purchasing this trying to reduce my privacy footprint by buying some security tool that does that and says that I’ll get all of your information off the web news flash. Not possible. You know, there’s thousands of data brokers that are in this country. There’s legislation that is going on in different states and at the national level to try to limit the aspects of the data broker stuff. But you know what? At the end of the day… Edward Marshall (09:14.178)that information is out there to nation states and to bad actors and try telling a hostile foreign country or a hostile hacker whether they’re in Brooklyn or Belarus to remove your private information from their data sources. It’s not going to happen. you have to, putting it in the perspective of governance is shifting the mindset away from Frazer Rice (09:31.318)Right. Edward Marshall (09:41.467)Just being a cost center and to how does this help? All of the family office operations that are there and the family improve their quality of life by keeping them more secure. And that’s a critical step to it. Then having a robust plan and really looking at the plan and testing it. This may say simple, but if you’re not, if you don’t have a plan and you’re just trying to patch things together and you’re not testing that plan, then you’re spending a lot of time and not of getting a lot of good results. If you’re not thinking of security governance and risk management governance through a maturity model, understanding what good looks like, where we are today, where we want to go into the future, here’s my gaps, here’s the things that a good family office that’s focused on this issue or a good company that’s focused on this issue looks like, then I think you’re missing out on a lot of things for these families to really keep them You gotta be able to fix those gaps and somebody has to own that mandate within the family and not be looking at it as, well we didn’t have any incidents this year as a metric. That’s too simple of a metric because you don’t even know. of how can you predict which incidents occurred or could have occurred during that time frame. that KPI for security and for risk management has to be important too because if you’re just trying to prove a negative, it’s very challenging for anybody within the family. And unfortunately, what this results in is a very reactive approach to security. 80 % of people will come to a secure Edward Marshall (11:35.201)or a risk management firm after something has happened. After attack, after a fraud, after insider threats of stealing of proprietary information, after a data leak. And the costs are enormous to do that kind of remediation and those kinds of fixes. Meanwhile, if you look at the front end of this issue and you look at ways on prevention, it’s much cheaper. It’s much less stressful for the family. Frazer Rice (11:38.423)Mm-hmm. Edward Marshall (12:05.104)And it really comes into that notion of don’t start with technology. Start thinking about people, then thinking about process, then thinking about technology. And that gives you a different mindset. Frazer Rice (12:16.279)I was going to say we’ve been alluding to people and processes internally. We’d been talking probably a lot about external threats, but then how do you manage the internal staff, the people that, the threats that are inside the family office and sort of the review process that probably makes a lot of sense in terms of understanding Who has access to important information, things like NDAs, staff, what happens when someone leaves? Do they take a key fob with them and all of a sudden, all the family secrets are out? How is that distinguished as part of the process compared to the external threats? Edward Marshall (13:02.072)Well, I’ll take that as an ability to have a gentle plug for a survey that we’re putting together and is currently launched. You know, we’ve done a lot of surveys in the space for family offices, but this one in particular is focusing on the estate management and kind of the security areas around estate management. can check it out on our website. It’s presageglobal.com forward slash survey. We’ve been working with the team at Nines very heavily to develop this over the last six months and launched it earlier this earlier this month. And I think that helps. think of some of the issues around insider threat and insider risks for estate management. So that’s the end of my plug for that survey. But going back to your question, and excellent to work with the group at NINES. If you guys haven’t checked out NINES and their estate management technology, it’s definitely, they’re great partners on this survey and beyond. The insider threat issue is one of those that is challenging for families because a couple of different factors. Where is that insider threat risk coming from? Where is the staff risk coming from? Well, you can look at it from a pre-hire perspective. How are you evaluating this person before they come into your family office? Oftentimes, if you’re working with a recruiter, they’ll say, we’ve done a background check on this household staff member, the person that comes into the family’s orbit, whether they’re a housekeeper or they’re a driver or they’re a nanny or they’re Edward Marshall (14:48.452)the CEO of the family office. Oftentimes the background checks that we’ve seen for those individuals are the same level of effort and level of quality. And all of these people have different aspects of access to the family. You might spend more money on the family office CEO background check, but the nanny is in your home 40 hours a week. and has access to your home 40 hours a week. oftentimes, people will fail to do the proper due diligence on that person because it’s been passed on by a recruiting agency that says that, you know, we’ve done the proper background check on this person that comes from there. So I think there’s very, families are not aware of what good looks like on a background check. Just focusing on the digital checks that are out there is not sufficient. I’m sorry, it just isn’t. And that matters to people that have access to your… to your family, your home, to personal spaces, as well as your finances, your operations, and your strategy for your family office or your operating business. The amount of diligence that you do there is critical, and what good looks like is challenging for families to see. And then the research tells us that 80 % of family offices don’t have an insider threat program, meaning once that person comes into the family office or to the company or some sort of for the family, they don’t do an additional check, periodic updates on that person’s background check. So obviously following employment laws for each state, which is critical, but there are ways that families can do and should consider around how you monitor the people that are there. Circumstances change. If you hired somebody and five years later, ten years later they’re working Edward Marshall (16:53.44)in your family office and you haven’t done any kind of background check on that person. Lots of things change in people’s circumstances that family should want to know about. as part of their diligence because of the level of access and the level of private information that that individual may have to the family. And again, you have to do all of this through counsel. You have to do all of this through employment law at the state level. As you’re doing all of these things, you should be working with smart legal representatives to one, make sure you’re following those standards, making sure if you’re doing evaluations of your security in general, hiring them to maintain privilege. of the information that people are following for you. But again, I think people fail to do those things because they don’t look at risk across the different domains of risk that are out there and just don’t know that those things are best practices because they’re really good at their silo. We are really good at this cyber tool. We’re really good at this privacy tool. We’re really good at this HR solution. But we’re not thinking things broadly around insider threat and insider threat management. And you can do all of it without making the family office feel like the KGB. You really can. And you should. Frazer Rice (18:19.192)The quick step to physical security. We’ve had a lot of violence around lately. We have geopolitical risk all over the place. the technological and the data breaches, et cetera, are one thing. It’s quite another when people are targeting to hurt. How do you think about that? Edward Marshall (18:24.32)Yep. Edward Marshall (18:41.506)Well, think you have to look at it from the lens that a lot of this and kind of the methodologies haven’t changed that much since John Wilkes Booth and Abraham Lincoln. It’s the same type of scenario. and how they’re targeting these folks in exposed places. I think that’s an element that people need to be aware is that it’s not just that there’s some technological breakthrough that’s happened in this space that causes physical threat to individuals, whether they’re outspoken or they’ve fallen into an industry that’s controversial for some people or for others. You know, there was the very sad incident that occurred in New York with the insurance company CEO. But you know, was another incident that a couple weeks later in the Chicago area that was very similar and didn’t get a lot of press and didn’t get a lot of headlines as part of it. So the physical security risk is a real one, but it’s one that you have to have a good understanding about it and you can’t just apply a blanket solution. A blanket solution is wonderful for the bottom line of a security company saying, well, you you think you have physical security threats, then you need a bodyguard or you need a residential security team. That’s the easy button. And that may not be the right case. And you have a lot of families that say, I don’t want executive protection. I don’t want to have a security driver. I don’t want to have a properly trained three person team that’s providing, doing advance work that’s doing security driving, that’s got all of the different aspects of proper body guarding and executive protection because I just don’t want that intrusion in my life. Edward Marshall (20:42.368)So you have that factor playing into that people do have physical security risks and they don’t want that kind of protection. And, you know, just like in the family, you have the ability to do that because it’s your family and no one can force that upon you. So how do you protect yourself? How do you think about monitoring of, Sometimes those threats, and this is not always the case, but sometimes those threats come in through social media because somebody might be a publicly very well-known person on social media or a very well-known person and people will… present those threats from there. How do you keep up with those types of threats? What kinds of technology, what kinds of analysis, what kinds of process should you bring into those types of threats? How do you determine if something is credible, actionable, or just somebody shouting into the wind? Because unfortunately, these devices are some of our best friends for productivity and our worst friends for security. And it also allows these people to sit behind a keyboard and say some really obnoxious things. But how do you know what is obnoxious versus what’s a credible threat? The specificity of that threat and all these different factors and identifying who that person may be is very challenging. And then, you you see it on stalking of family members or children or cyber stalking. How do you how do you get the attention of law enforcement when they’re focused on a lot of different things? to look at these things. There’s a finite amount of resources that exist in law enforcement, especially around these types of issues. Yes, there are state-level and federal-level laws and statutes that you can use to protect yourself and your family from it, but if you’re not organizing the information in a proper manner to give to law enforcement so they can take action on it… Edward Marshall (22:53.182)it’s going to be a challenge. And these are all wonderful people that work in federal, state, and local level law enforcement, but it’s just a question of resources sometimes. And these families that are facing these terrible types of issues need to have a good understanding of what’s there. But physical security, again, people will harken to Well, we’ve got great cybersecurity, but we haven’t paid that much attention to our physical security. Well, that means you have no cybersecurity. Because if I can walk into your office and I can get into your server closet and I can be proximate to it, then all of the fancy tools and the money that you’ve spent on cybersecurity and taking your information off the dark web, not possible. Just telling it out there in case somebody… And understanding that, Frazer Rice (23:40.16)Reiterating. Edward Marshall (23:47.445)then you have no cybersecurity. Or we’ve got cameras, we’ve got this fancy camera system that’s, we even have license plate readers for a car, for a neighborhood, for our office. Wonderful, who’s monitoring it? Who’s monitoring it two o’clock in the morning? So is all of that physical security you’re putting in there reactive? Or is it layered to make it you have a less attractive target for bad actors that are out there and having somebody looking at it? And unfortunately, again, families don’t know how to put those… areas into place in a systematic way because a lot of the vendors in this space are very focused on just this. I’m going to get it done, we’re going to sell the camera system and go from there. Or I’m going to sell this widget and go from there. Great for them, terrible for the family because if it’s not properly installed, monitored, you haven’t done a physical security assessment of the home during the day hours, during the night hours, looking for different changes in the environment. then you’re trying to bail water out of a ship that has got a hole in it. And you don’t know where the actual risks lie in that aspect. And you get into the notion of survivorship biases for families. Well, we haven’t had an incident happen, so we’re fine because nothing bad has happened before. And that’s a challenge. Frazer Rice (25:18.304)It reminds me a little bit of zero days since the last workplace incident. It’s awful. That’s great right up until you have one. And then it’s an embarrassing and counterproductive problem that you have to deal with. As we start to wind down here quickly, if we’re advisors, lawyers, accountants, people around families, family offices, et cetera, who are Edward Marshall (25:37.048)True. Frazer Rice (25:44.586)aware that there’s an issue, how do you interface with experts like yourself to get the conversation started? Edward Marshall (25:52.899)Well, I would say whatever group you’re working with on security and risk management for family offices, you should really be looking at a group that is focused on diagnosis first versus prescription and remediation. And avoid the fear-based… marketing that’s out there because frankly it’s disgusting and people still do it. So I think those are critical factors to it. It’s diagnosis first, understanding what the family is. We talked about it before. It’s not just looking at a checklist. A checklist is a wonderful thing that you have to do if you’re pilot before you fly the plane. But you have to go beyond that and actually have the experience and the understanding that the anthropology, it’s the cultural awareness of the family, it’s the understanding of what a family office is versus some abstract notion for many folks that are there. Looking across different domains of risk as well and seeing how these things go. know, a prescription before a diagnosis is challenge. Are you looking, starting out from a vulnerability aspect and understanding what things are out about the family because that’s a critical step and what’s important to the family. Who do they need to protect? Maybe the principal doesn’t need, says that I’m fine, I don’t need security, I’ve got this handled. Okay, that’s great, but you have children and a spouse, so how would you feel if something happened to them? And because they have, if a bad actor doesn’t care if it’s you or your family, they’re going to look at the principal as somebody who’s a hard target because there’s a lot of resources on there. But the soft target could be the kids or the nanny driving the kids to school and all these different elements. So really thinking beyond just what’s in front of your face around risk is critical as well. And being able to have that conversation with the family to understand what’s there. Going from understanding those vulnerabilities of what’s there Edward Marshall (28:07.984)to understanding how those vulnerabilities occur, valuing your technology, evaluating your physical risks and all these other risks that are there, how they’re developed, why they develop for your family, at, you know, not looking at devices, looking at setups of everything, and then putting together a real plan to say, we’re here, we have these aspects in our family office that are, you know, not as good as they could be on our security front. And how do we actually build a plan and then execute to develop good security around that? One of the areas that families, and again, sorry for the small plug, but one of the areas that we have found that families like is a comprehensive look at security, where we’re acting as their family chief security officer. and looking at risk in a holistic, strategic way. So they’re not looking at all these different disparate aspects of security and risk management. And it’s not just choosing off of a menu. We’re really providing you that aspect. There are very few families that have a full-time chief security officer in their family office. know, smart people that do this well are very well compensated. So if a family is looking at resources and how much they’re going to be putting towards this, might not be something that they’re thinking about until they get to a very, you know, very different level of what they’re looking at. But. But being able to do this on a managed basis is something that families have found to be very effective, rather than just choosing off the gas station sushi menu of security solutions. Edward Marshall (30:02.146)that look attractive but might not be the right thing that you need. That might be great for the security company or the risk management company, but not necessarily making your life safer, improving the quality of life for your family, and then going on from there. Again, I go back to what we talked about at the beginning. as a family looks at it, risk perception is what we deem it. And that plays a big factor into how families look at risk management. Is it, there might not be an awareness of what the risk is, or even if there is an awareness of what the risk is, there’s not a desire to focus that heavily on it, apply resources to it. I don’t like physical security, I don’t like fill in the blank. But you have to at least know what those things are. so that you can plan around it and plan to protect the things that are the most important to you in your life. Frazer Rice (31:03.02)Great stuff. How do people find Presage and reach out to you? Edward Marshall (31:06.862)Sure, so we put a ton of stuff online on our website, lots of good white papers, lots of good frameworks that people can look at. Our website is www.presageglobal.com. P-R-E-S-H-E global.com. The surveys on the website as well. LinkedIn, we put a bunch of content on our… Security matters. We have newsletters. focused on the 10 domains of risk. have a weekly newsletter that gives you strategic insights around the world across the different domains of risk. if you could sign up for it there, email us, call us. We’d be happy to have a conversation as you’re trying to go through this. know, Fraser, I really appreciate our ability to have this conversation again, because I think it’s an important one. And you’re taking a very view of how to support these families on a number of different issues and I think this is this is an area and an issue that doesn’t get a get the right a kind of attention towards it so I appreciate your time. Frazer Rice (32:21.194)No, thank you for being on. It’s a vital topic and frankly, if you’re looking for risks around a lot of different things around a family situation and you don’t include security as part of it, I don’t think you’re doing the full job. So Ed, thanks for being on. Edward Marshall (32:36.151)Yeah, no, I really appreciate it. Have a great one. Frazer Rice (32:38.966)Likewise. Outline of Family Office Security Engaging with security experts can enhance family safety. Security and risk management is suddenly urgent in the family office world. Why now? What’s changed in recent years to elevate these vulnerabilities? You’ve argued family offices are “risk magnets.” What about their structure, privacy, and scale makes them such attractive targets today? What do you mean by “security jewelry?” Where do families get the gap between perceived and actual security wrong? New survey project? https://www.presageglobal.com/survey Most people still picture alarms and bodyguards when thinking of security. What is the risk landscape for family offices in 2025? What’s in the equation that wasn’t before? Your proprietary “Ten Domains of Risk” framework is widely referenced. How does that differ from traditional approaches, and why did you create it? Can you share a real-world or hypothetical example of risk cascading across domains? How a small weakness triggered a much bigger crisis? What does a comprehensive risk audit/assessment look like at Presage Global? How do you keep it actionable rather than overwhelming? What is “intelligence-powered” risk management, and how does it go beyond standard security consulting? Where does the assessment process usually reveal the most hidden or underestimated threats? How has the threat from AI—like deepfakes, adversarial AI, and data exfiltration—evolved? Are families prepared for these risks? What AI-accelerated threats keep you up at night when working with families? If we look ahead three years, what vulnerabilities or attack vectors will be most pressing? How significant is the insider threat in family offices? Why is this such a blind spot, and how can families detect and manage it proactively? How should families and family offices approach vendor risk, especially for technology providers and outsourced services? Executive protection is evolving. What does modern, intelligence-driven protection actually look like, and how should non-celebrity families view this service? How do you integrate physical security across multiple residences and geographies? Cyber threats and ransomware are in headlines. Why are family offices especially attractive targets, and what’s different about their digital vulnerability? In terms of governance, who should own security as a responsibility? How should it be mapped in the family office org chart, especially for lean teams? Advisors (attorneys, CPAs, wealth advisors) are on the front line. What red flags should prompt them to recommend a specialized security review? How should risk and security management be holistically coordinated? Wwith legal, estate, tax, and investment advisors to prevent things falling through the cracks? For families hiring new staff, what are the most common mistakes made in vetting, onboarding, and ongoing security training? What does an initial conversation look like and how should they prepare? What’s the best way for the audience to stay updated and connected with you and Presage Global? BIO:Edward is the Founder and CEO of Presage Global, an intelligence-powered risk and business advisory firm. Presage is a trusted partner to c-suites and boards, family offices, and investors. Edward is a family office insider and a leading family office researcher, advisor, and author. He is also a risk and threat management specialist. He is working with families to reduce their cyber, physical, financial, operational, and reputational risk profiles. Edward is a member of the Advisory Board and co-heads the Family Office Initiative at the UHNW Institute. UHNW individuals by promoting best practices, professional development, and positive change in the family office and family wealth field. He also co-authored the book, The Family Office: A Comprehensive Guide for Advisers, Practitioners, and Students. Prior to founding Presage Global, Edward held leading family office roles at Dentons, Credit Suisse, Citibank, and Boston Private. He joined Credit Suisse from Booz Allen Hamilton and previously was a research assistant at The Kennan Institute. Edward lectured as an Adjunct Professor at the Henley-Putnam School of Strategic Security. He began his career in the public sector, working for the federal government in the United States and abroad. Edward serves as the Senior Advisor to the President of The Kyiv School of Economics in Ukraine. He founded “After Service,” a Ukrainian NGO focused on reducing veteran suicide and supporting Ukrainian veterans in civilian life. He is a board member at the Defense Intelligence Memorial Foundation (DIMF). It provides full scholarships to the families of Defense Intelligence officers killed in the line of duty. He is an advisory board member for Americas Warrior Partnership (AWP), a nonprofit focused on reducing veteran suicide. He earned his MBA from New York University’s Leonard N. Stern School of Business and a BS in Human Biology from Michigan State University. Risk is perceived differently by families and companies. Family offices often have engineered vulnerabilities. Traditional risk management is siloed and reactive. Good security should improve quality of life for families. Insider threats are often overlooked in family offices. Physical security risks are increasing in today’s world. Technology should support, not replace, security processes. Families need to monitor their internal staff regularly. Diagnosis of security needs is crucial before remediation. How to Find Edward Marshall PRESAGE GLOBAL: https://www.presageglobal.com https://frazerrice.com/ep-129-ed-marshall/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

In this conversation on “TAX ALPHA”, Frazer Rice and BRENT SULLIVAN (of TAX ALPHA INSIDER) delve into the complexities of tax awareness in investing, focusing on capital gains, income tax, and various strategies for tax efficiency. They discuss the importance of tax loss harvesting, the challenges of managing concentrated portfolios, and the implications of estate planning. The conversation emphasizes the need for advisors and trustees to understand these strategies to optimize tax outcomes for their clients. https://youtu.be/pCIXFq4YoS0 Outline of Tax Alpha Quick Overview of Tax Rates Ordinary vs Capital Gain (Usually Income vs Asset based taxation) Short Term vs Long Term (Long Term Treatment) (we’ll talk about Estate Later) Federal vs State (Can be important!) Netting Losses/Deductions vs Gains and Income Owning assets Taxable vs Non-Taxable vehicles https://open.spotify.com/episode/3uL924aOlPd2hgmC9s7KCI?si=hBS09OKDTd-uHhT8PAj7aA Tax Alpha in stock investing (Universe) Long Only Concentrated Positions Timing – Getting LT Capital Gain treatment Basis – increasing basis Exchange / 351 Funds to defer and diversify Dramatic foreshadowing with step-up later in estate context Blind Trusts for political appointees Diversified Positions Passive (Lower Cost, acceptable returns, “lower risk/tracking error”) Active (Now frowned upon – except in the after tax world w/ TLH) Deferral Carve-Outs like QOZ’s Tax Lost Harvesting Owning an index vs owning a sample of the index Buying Coke and selling pepsi Wash Rules Loss Carry Forwards Capital Losses / Not Ordiany Losses Amplified Tax Loss Harvesting Own the sample of Index AND Borrow off those holdings to create long and short positions to generate capital losses while having beta of 1 Trends: Pre-Liquidity Event planning Storing Losses for the bulky sale Timing the event(s) to have the losses line up with the gains Pre-Diversification planning Pre Death Planning Integrating the Estate Planning with the Income/ Cap Gains Planning Step-Up Avoiding Estate Tax, But Prolonging the Cap Gains Tax exposure (and concentration risk?) Grantor Tax status and he swap power How does turbo charged loss creation look in an estate environment? Trustee/ Executor and Fiduciary / Beneficiary risk issues Vehicle evolution Funds SMA’s 351 and other ETF vehicles (+/-‘s) PPLI,PPVA How did you develop this expertise? How do we find you? Transcript of Tax Alpha Frazer Rice (00:01.122)Welcome aboard, Brent. Brent Sullivan (00:03.035)Well, happy to be here, Fraser. Frazer Rice (00:04.558)It’s fun to chat in person. I’ve been following it to call a blog I don’t think gives it the proper respect because I think you’re uncovering a lot of great information for advisors like me and wealthy people and other people generally speaking in terms of Really getting going on the tax alpha end of it Let’s start a little bit with some basics because I think you know for someone new to the concept of Being particularly tax aware in terms of investing taxes can be, they’re more than just income tax, that’s for sure. How do you think about it? How do you get your framework around what people are trying to avoid when they’re dealing with their investable portfolios? Brent Sullivan (00:45.723)Yeah, I mean, there are really just a couple of different ways to break it down, but I probably start with the concept of a capital gain as a distinct thing from income tax. so capital gains come in really like four different flavors. There’s short-term capital gains, short-term capital losses, and then long-term capital gains, long-term capital losses. And then these things are different if you have collectibles or other types of instruments too. But the point is here that you’ve got those four quadrants that you’re always sort of operating in. And I think that’s where the management and the prowess around portfolio design, execution, that’s where all of that really comes into play. And the final point I’d make about capital gains versus income is that capital gains is really a planning opportunity. Income is gonna come at you and there’s really not much you can do about it. Strong caveat to that. But capital gains are really about timing. You can accelerate losses, you can defer gains. Frazer Rice (01:37.929)Right. Brent Sullivan (01:45.079)And that’s really the beginning of the conversation when I’m talking with advisors about this usually. I operate in B2B space, I’m not retail facing. And usually that’s where the planning conversation starts. Frazer Rice (01:57.655)So as you sort of step back and help people think about the tax planning aspect of it, for advisors generally speaking, they’re very interested not only in the investment perspective, but the structuring of wealth such that they’re taking advantage of what they can and mitigating that which is destructive, but otherwise not really something they can avoid. If we settle in a little bit on the investment piece a little bit, what is the universe that we’re looking in in terms of how people allocate their portfolios? Brent Sullivan (02:33.22)Well, mean, so probably I’d say the hot topic in tax management nowadays is really getting the portfolio to be more equity like. And so the reason or part of the motivation for more equity like exposure is to utilize to the extent possible the planning opportunity of capital gains, realization and acceleration and things like that. So that’s that’s probably the core concept. The biggest chunk of the investable portfolio. The idea is to make it more equity like. And then the planning opportunities sort of expand beyond the core portfolio. That’s in, you know, how can we align total diversified exposure across the right types of investment accounts? In your space, it starts to get really interesting. You know, I say your space, like in a state planning world, it starts to get, you know, the idea of asset location, putting the stocks, you know, in the high growth portfolios or tax exempt portfolios, depending on the profile. Frazer Rice (03:17.228)Sure. Brent Sullivan (03:26.458)Putting the bonds in tax advantaged accounts or tax exempt accounts, again, depending on the profile. All of that is like, these are like really crisp, interesting planning questions that do not have crisp answers. And I think that’s where the planning opportunity really emerges. Frazer Rice (03:42.668)We talk a little bit about asset location. The investment vehicles we’ll talk about shortly and some of the things that can happen to turn the dials on that front. But in terms of location in whether ERISA accounts or life insurance or trusts or things like that, as people are trying to get their arms around the matrix, as you called it, and certainly with the capital gains and short and long, there’s almost a matrix of different things you can think about in terms of the tools in your toolkit. How do you get your arms around that if you’re new to the space or otherwise trying to really provide subtle advice as opposed to maybe speculative advice? Brent Sullivan (04:23.214)Yeah, I mean, I think that the first step is really trying to understand how each investment decision impacts not just the current investment returns, but also future investment returns, after-tax returns, pre-liquidation, post-liquidation, but then also estate considerations, like are you choosing the right vehicle if you’re trying to isolate or exclude assets from the estate? Do you want to keep a strategy on for multi-generations? Is it private? Public? Is it liquid? Iliquid? Inflation protected? All this kind of stuff. You have to realize that every single investment decision involves or impacts this really complex ecosystem. It’s super interesting, but I think like first order decision is like how much of a thing should I own? That is just like the tip of the iceberg. And I would say that’s where 99 % of like the financial media focuses. You how should I invest a million dollars now? It’s like, no, boy. Like there’s so much more ground to cover that could make portfolios resilient today, but also with multi-generation in mind. Frazer Rice (05:29.835)As I like to say, trying to get past the two dimensions that most people are normally thinking about in terms of the X and Y of income and capital gains and then sort of layering on asset allocation to be responsible on that front, but then add the Z axis of the estate planning, really kind of years 10, 15, 20, and then going beyond your use of the assets to different constituencies that are going to benefit from it later. Brent Sullivan (05:55.365)I mean, I get so excited when I think about the opportunities in this space because they’re so messy and bespoke. And I say messy in a good way. These are real problems that planners have an opportunity to step in and address for high net worth folks. really, down market, I don’t say down market in a pejorative sense, but mean, in down market too, there are really opportunities for planners to step in and add meaningful value and like again, I am an observer of this industry. I’m an independent tax analyst, which means that I don’t have a stake in the game. I don’t, I’m not trying to sell anyone’s product. So I just get to see the opportunities that planners have when they’re engaging with, with clients at all wealth levels. And again, like to your point, yeah, multi-generation is super exciting. It’s so messy and interesting. Frazer Rice (06:43.755)As we look at it here, the one unifying theme is most people don’t want to pay taxes if they don’t have to. success really does come down to what do you get to keep at the end of the day from the fruits of your labor or your investment. Without that unifying principle, then we’re sort of grasping at straws I guess. Let’s start with the simplest sort of tools that we have in the toolbox. And this is gonna combine a little bit of investment vehicle and tax awareness in the long only space? What are the things that you’re thinking about in terms of the tools that a lot of people have access to, but maybe not have the tax awareness that we think is a good idea to think about? Brent Sullivan (07:27.332)Well, mean, the easiest thing or probably the highest level thing is just asset allocation specifically. And so that’s just like at the very, very simplest level that would be, you know, how much of your portfolio is allocated to growth assets like stocks versus how much of your portfolio is allocated to fixed income assets or something fixed income like like bonds. That’s the first decision you need to make. It already has tax implications attached to it. And the first tax implication is are we dealing with the character of capital gains in the equity sleeve and we’re dealing with income in the fixed income sleeve. Okay, you already have like made tax decisions at that point. So should you be augmenting portfolio allocation to make sure that your after-tax results are more favorable? Now again, to my earlier point, this is where more equity-like exposure starts to come into the fold. We haven’t even layered in any complex products or anything yet. We’re still just talking about stocks and bonds. But then if we’re expanding beyond those core allocation decisions away from stocks and bonds and we’re adding different types of accounts. Again, like you said earlier, ERISA, other qualified accounts, IRAs, whatever it might be. Now we have an extra lever to pull. Okay, great, maybe we should be putting all those bonds in the advantaged accounts such that we’re not realizing income or such that we’re not paying income tax and experiencing tax drag like on an annual basis. So that we can expand even beyond that and we can start thinking about planning around accelerating losses and deferring capital gains. If we start matching those income or we start matching those assets, tax assets, probably through something like tax loss harvesting as a trick, and we’re matching that with capital gains liabilities that we’re expecting either through routine portfolio management or through an exit, we can start matching these things and really pushing out tax into further and further years. And that’s really the planning opportunity there. And again, there’s plenty more we can do beyond that. But I think the basic tools, again, allocation and then location. And then if you want to get into the portfolio itself, there are specific products that might be able to dial in those concepts even a level further. I’m talking about things like no dividend ETFs to the extent that’s relevant and attractive to the investor. Brent Sullivan (09:47.567)And then there are other things now, interesting happening in fixed income. Okay, are there ways to defer the income such that, and to have it have a capital gains treatment instead of ordinary income? That’s probably, you know, those three tiers again, allocation, location, and then investment selection in the portfolios themselves, very powerful right off the bat. And again, we haven’t even done anything complex yet. Frazer Rice (10:08.115)So let’s dive into the complex. Tax loss harvesting, is really kind of the bell of the ball right now in the investment community and getting talked about on many fronts. Talk a little bit about the concept there of what it is to generate losses while maintaining the character of an investment profile that you think is appropriate for a client. Brent Sullivan (10:28.91)Well, OK, so let’s say that we’ve got a portfolio that’s 80-20 stocks and bonds. Let’s set aside the bonds for now. Let’s just focus on the stocks. So the stocks have capital gains treatment as an investment asset class. And what that means is that as the portfolio is oscillating around its cost basis, right? So you buy the portfolio, you buy an asset for $100, and it appreciates above the $100 to $110. You’re in capital gains territory, unrealized capital gains. If it trends below the cost basis, you’re in capital loss territory. And so the portfolio is bouncing around that critical number, the cost basis. If it’s below the cost basis, you have the opportunity to liquidate that asset, capture that tax loss, and then reinvest in something that is not exactly the same, but is similar in risk profile. Similar is the key word, not substantially identical. And the idea is that you’ve captured this tax asset sits on your household balance sheet and it can be unlocked and utilized when you realize capital gains somewhere else, again, in the entire household portfolio, as long as it’s still within the estate. That’s really the strategy there is to capture those tax losses and then to use them to offset gains that might be occurring elsewhere in the portfolio just through routine portfolio management, but it also might be through tax inefficient vehicles like managed futures. It could be from some income program, again, capital in nature, not income. And those are really the opportunities that are immediately present through tax loss harvesting. Frazer Rice (12:06.92)One of the things I think is important is that typically most people say, oh, if you’re taking losses, is my portfolio going down? The reason why this is appealing is that, you know, instead of having one index that represents a particular, say the SP 500, you’re investing generally in a basket of stocks that is Sam is a sampling of the S and P 500, which allows you to take advantage of the oscillation while maintaining the investment characteristics of the larger S and P 500 index. Did I square that correctly? Brent Sullivan (12:38.224)Yeah, 100%. Yeah, that’s it. I mean, so you’ve got S &P 500 exposure or Russell 1000, Russell 3000 exposure. And then what you’re referring to is really the granularity of individual holdings. And so you can imagine, if I hold one ETF and it’s oscillating around the cost basis, well, that these oscillations occur with much more violence and interest if the portfolio holds individual positions. The idea is that as those individual positions dip below cost basis, you sell them. You reinvest in something not substantially identical but economically similar such that you maintain the same exposure. So you’re still getting the benefit of appreciation in the portfolio and the same risk reward characteristics. But now you’ve got these tax assets sitting on your household balance sheet. Frazer Rice (13:26.123)Now, one thing that’s sort of popped up as a product enhancement in this type of scenario is the idea of embedding short and long term overlays on top of this tax loss harvesting so that you can get the notional value beyond what’s being invested and generate more losses in addition to having your exposure to the underlying investment. Maybe talk about that a little bit for the listeners. Brent Sullivan (13:55.995)Yeah, I would say probably the white hot topic in core portfolio management nowadays is exactly what you said, Frazier. It’s adding additional margin or it’s adding a margin to the portfolio and then complementing that margin with short positions. Just to give it like a simple example, suppose that we have simplest possible example is probably imagine you have an S &P 500 ETF. Okay. Start with that as your core allocation and then you borrow against that ETF, you use that ETF as margin and you add more long exposure. And so the long exposure, let’s assume that it adds another 100 % to the portfolio. So you started with $100, now your portfolio is $200 gross. And then you complement that extra margin long with shorts, and you do them the same as the margin. You have $100 core portfolio, $100 margin extension, $100 short exposure and the idea is that the long Margin and the shorts are market neutral such that the manager who’s handling this is really interested in relative value between the two So your gross exposure in that case would be 100 margin 100 core 100 short for 300 gross exposure But your net exposure is just that 100 and the again those those extensions are market neutral ideally such that we’re capturing relative value. That’s the pre-tax alpha argument. And then there’s a post-tax alpha argument where it’s like, there’s a lot of interesting opportunities to accelerate capital loss realization in the longs the shorts, depending on how violent the market is that you’re. Frazer Rice (15:41.069)That it’s one of the things that for the mad scientists among us, you can turn the dials and if you want something different than market neutral, i.e. you’re willing to take a little bit more risk on that front in the theory that you’re able to maybe generate some more alpha by in a sense just being a little bit more aggressive on the risk side of the investment. Then you’re able to dial in a little bit more return while going for it on the tax loss generation end of things as well. We’re seeing that with different clients here. where the market neutral is very interesting and as part of a core allocation, a good idea. Then they’re willing to listen to the manager underneath and say, might be an area where your prowess might be rewarded in a way that helps us on a pre-tax and a post-tax scenario. Brent Sullivan (16:33.628)Yeah, 100%. Yeah, I mean, so that’s probably the first order concern is always like, hey, does this investment make sense? Does it add, you know, maybe additional diversification principles, maybe, you know, whatever it might be, maybe pre-tax alpha generation. Like, that’s the first order concern. Does this make sense? And then once you’ve broken through or confirm that barrier, because you’re going to expose the portfolio to additional tracking error, that is to say difference between the portfolio performance and the underlying benchmark, these extensions have risk attached to them. If you’ve confirmed that it’s worth taking that additional risk and paying financing costs and whatnot, and all that is not free, then if all that makes sense, then finally you can say, actually there’s a lot of really great post-tax opportunities here too. And this really comes, let me just give you a quick flavor of it because it’s interesting. On the long side, this is just as if you had injected a bunch of cash into the portfolio. And so from my earlier example That’s just like you had reset the cost basis high again. So what that means is that the portfolio is pretty close to cost basis. Again, it’s oscillating around that really critical number. If the long extension dips below the cost basis, you can harvest those losses. That’s interesting, maybe even intuitive to some folks out there who are used to sort of direct indexing, typical tax loss harvesting. But on the short side, it’s really much more interesting. Essentially, your shorts are a bet against the market. Okay, so if the market keeps going up, there’s almost always, nearly always, I don’t wanna say it’s not unlimited, it’s not in perpetuity, but almost always, there’s an opportunity to capture losses on the short side. So this one’s quite simple to understand, it’s technically complex, but the idea is if the market’s going up, you have losses. Now that’s totally different than a long only mandate where if the market’s going up long enough, you sort of run out of losses, you run out of basis to mine. If you think about it as like a little gold pile that you’re working into to try to extract tax assets, that disappears over time. Long short extensions reinvigorate that possibility, I don’t know, say almost in perpetuity, almost, heavy asterisk there. Frazer Rice (18:44.068)That’s right. No guarantees or anything like that. The asterisk is in bold and underlined. So we’ve been talking a little bit about really in a sense diversified portfolios and allocating in that world. If we get into the concentrated portfolios, many people build wealth. They work at Google. People sell a business. They do something like that and they have or they have a business that haven’t sold it yet, but their wealth is concentrated in one thing or the other. What is the universe around that to help sort of a tax-efficient component of either disposition or otherwise planning so that capital gains tax is as low as possible and it can get to the next generation or elsewhere in a more efficient way. Brent Sullivan (19:28.634)Well, let’s start with the long short as a solution in that specific case, because this is a very popular topic. It’s also, advisors are very interested in it because I think, because they’re getting inbound from clients who are just like, hey, I’ve got this really gnarly situation. I’m holding, like you said, too much Google or I’m about to exit. So what can we do here? And I think this is really where the planning opportunity steps in. So if we assume. Frazer Rice (19:35.299)Mm-hmm. Brent Sullivan (19:55.397)Let’s assume that the investor is holding a publicly traded large cap stock just for simplicity. Let’s assume that we’re going to consider long short extensions around that concentrated position as a means to diversify, to de-risk over time. The way that that works is the investor would contribute, let’s say their Google shares into a portfolio margin account. And the portfolio margin account just essentially uses risk-based criteria to be able to dial up the leverage pretty aggressively on the margin and short sides. So the investor contributes the Google to a portfolio margin account and then uses, the manager uses the Google as collateral to again add that margin position on top and then shorts a complimentary portfolio to maintain that market neutral exposure. Okay, so you’re getting that pre-tax alpha that is helpful for, know, always pre-tax alpha never hurts. But what’s actually happening is that, or what’s really happening in compliment to the pre-tax alpha is that you’ve got a lot of loss realization. As you’re realizing capital losses, you are using those capital losses to offset capital gains as you wind down the concentrated position. Depending on the amount of leverage that you’re using in this portfolio, you can really exit the position tax neutral. That would be the objective. This is again, deferral, not avoidance. It’s deferral. You’re eventually pay the tax. Another strong asterisk! The idea is that you want to try to execute this position tax neutral and you can do so if you’ve not already realized the gains that the typical timeline with a heavily leveraged portfolio, something like two years to exit tax neutral from that concentrated position. And if you’re uncomfortable with really, really high amounts of leverage, then you can do it something like in five years. Frazer Rice (21:45.115)I mean for people who are thinking long term, two to five years is much more palatable than say the standard where you have this big bulky position and you’ve got, let’s say you came in at 200,000 and it’s worth a million, and you’re saying, gosh, how do I get from here to there? That’s a meaningful sort of absorption of time to get you into a diversified place. Brent Sullivan (22:09.562)So that is really the critical point that you’re making. Like what is a graceful way to get from A to B? So it’s like, do you know what you want? Do you know what B is? What’s your ideal state that you want to gracefully transition into? So if your initial state is concentrated stock and you’re like, wow, my ideal state is Russell 1000 diversification. I still want to upside exposure, but I just want to not be so idiosyncratically concentrated. Okay, cool. Frazer Rice (22:23.81)Mm-hmm. Brent Sullivan (22:38.128)What’s the most graceful way to get from A to B? And there are a bunch of different methods. Long, short, just a direct extension over a concentrated position will allow you to gracefully transition from A to B. Now, there are other tools too in the concentrated toolkit. Probably the simplest is, of course, just to sell it. You could just exit the position instantly. Now, is obvious ramifications, tax ramifications. Frazer Rice (23:03.788)Simple, graceful. Brent Sullivan (23:05.264)Not graceful, know, yeah, yeah, it’s like yeah, it gets yeah, it gets gnarly now that makes sense for some folks though You know just be done with it, you know, let’s transition. Let’s diversify instantly. You know, there are other tools there to like an exchange fund depends on the capacity the fun depends on the underlying characteristics of the name but probably for your audience I think it’s worth having the variable prepaid forward on their radar and so variable prepaid forward achieves a couple different objectives. First, the way that it works is you’ve got a concentrated position and then you can imagine a cap and a floor placed on that concentrated position and then a loan granted against that collared position. Then the loan is usually something like 75 to 90 % of the notional value of the position. So again, you contribute $100 worth of Google put on the variable prepaid forward. This requires an ISDA, it’s a very complex arrangement, but you put on the variable prepaid forward and then the loan that you’re granted against those $100 would be something like, again, $75 to $90. What you do with those proceeds is you put them into a diversification program. And nowadays, ideally, that diversification program includes loss harvesting potential such that when the variable prepaid forward matures, you’re able to match losses from the diversification program with gains from winding down the isolated position. You also retain the optionality to extend the variable prepaid forward. So again, like Frazer, just to your exact point, it’s just like, how do you get from A to B in the most graceful ways? There is just like the whole toolkit to get this done thoughtfully. Frazer Rice (24:46.506)Well, one of the things that, you know, if you start talking about the estate tax perspective, one of the tools is the step up in basis when you die. And so for some people who are willing to absorb that concentration risk, sometimes it’s worth holding onto those shares. if the idea is that you’re thinking long-term enough to pass them on to somebody else, you end up getting a step up in basis. Your estate does when those shares, when you pass away and then that capital gains part goes away. Now you have to net that against the estate tax. Fortunately, we have large exemptions in place, but that’s another tool in the toolkit that we think about. Brent Sullivan (25:23.984)It’s insanely valuable from a planning perspective. I think you could educate me a little bit here, from the on community property states, you’re going to get spousal step up. tell me about that, because that does come up with some regularity. Frazer Rice (25:31.84)Sure. Well, a lot of times you have to be careful in terms of how these are owned so that you don’t get half of it split and half of it not. Essentially there are some States that allow community property to be co-mingled into a trust so that you get the step up immediately. That deserves its own episode on its own probably. we’ll dive in. We’re going to, dramatic foreshadowing for our listeners, we’ll probably have a separate estate planning one, but Yeah, no, that’s a big deal where you have to really understand the characterization of the features there of ownership so that you’re not splitting one and not the other if it’s owned jointly. Brent Sullivan (26:20.794)Yeah, that’s a fascinating topic. That’s a real planning opportunity in community properties states. There are other solutions too we could get into another time. But just suffice it to say that like the planning opportunities here, this is really the work of an advisor, I feel. It’s not investment selection. I mean, to a certain extent, it’s investment selection, but it’s design, it’s thoughtful planning, it’s accelerating losses, deferring gains, optimizing gains, using tax as a risk mitigation device. That’s probably a little complex, but this is the work of a thoughtful advisor. Frazer Rice (26:52.288)No question about it the it just to get back into the estate planning world even though it just said we’re going to hit the pause button on that one of one of the main things that that in terms of getting things out of one’s estate the the basis carries over and so when you’re doing planning to get away from the estate tax oftentimes you’re not necessarily going to avoid the capital gains tax if you go sort of the simple route There’s the concept of a grantor tax status where sort of dialing up good estate planning is having the grantor or the donor of the assets into the irrevocable trust pay the taxes on that and that’s done by keeping a set of powers that makes it an incomplete gift. One of the things that we talked about I think in a different vein was the idea of in a sense having your cake and eating it too where if a grantor is able to put low basis assets into an irrevocable trust for and or maybe low basis and then they grow later so that the growth happens out of the estate maintain the power to substitute those assets which is that’s the real juice here uh… and then be able to substitute those assets that correct fair market and provable valuations through uh… through a firm uh… you know valuation firm. To substitute it with something like cash that has a high basis so that when you substitute, you’ve gotten the value out of your estate, but then you get the low basis back into your estate so that you can take advantage of the step up later when you pass away. Is that something that’s come across your desk? I’m sure when people are looking at everything from low basis of stock to companies to so on. We’re seeing it as well where people are saying, okay, you know, what are the best assets to put into these vehicles short and long term so that we try to avoid as much of the different types of taxes that are out there. Brent Sullivan (28:58.084)Well, I’m pleased to say that this is definitely a fringe topic. So yes, it comes up for sure, specifically swap power. as deep as we want to go on this, Frazer, we’re more or less bringing what some folks, I think, in estate planning would consider routine practice, where we would be shedding light on it. Because I think these opportunities are interesting, but I think are rarely discussed out in public. So I mean, that’s really the opportunity for us to create some really interesting knowledge sharing just for the community of listeners or both for my readers. I think this area is, it’s in its nascency if we’re talking about concentrated positions from a public exposure standpoint. Frazer Rice (29:41.886)One other thing to put a pin on so we can maybe discuss it and we’re now we’ve now created a whole new podcast not just different episodes but we’re seeing a lot of interest in private placement life insurance and private placement variable annuities really more as a location device in terms of allowing tax-free growth because these is this is life insurance But then when it’s stitched together with the estate planning component, because oftentimes life insurance is bought in order to match up with the liability of an estate tax. so when someone dies, it’s there. and PPLI is something that we’re seeing a lot more interest in because as a vehicle for owning alternative assets, which are usually high, high, highly taxable, either from an income or otherwise component, why not own it in a vehicle that kills two birds with one stone? You avoid the taxes on the sort of income and capital gains basis, but then you also get good estate tax treatment if you’re able to own it that way. Brent Sullivan (30:42.67)Yeah, totally. I mean, yeah, you’re going to educate me on all that stuff. I mean, that’s that’s one step beyond what I normally encounter, even though I’ve got the PPLI books sitting on my desk over there. Frazer Rice (30:52.564)It changes hourly because it’s becoming more more popular as we get going. the, you know, as we sort of, I don’t know if we want to wind down here quite yet, but the one thing that’s interesting here is we get to a, for people who are operating in that estate world with where executors and trustees and people who have what I call fiduciary with a “Capital F” types of roles. Do you get people asking you, know, what do I have to think about? If I’m an individual owning it, that’s one thing because those people are responsible for their own investments. I maybe they’re getting help from an advisor and there’s some back and forth on that, but the concepts are sort of limited to that person or that generation. So you start going to the world where you have to probate in a state or then manage a trust with these types of concepts. To me, the functions are important because you’re not only managing assets, like when things go wrong, you’re personally responsible. And that to me is, think, some of an area where we’re to have to discuss even further what we’re doing here because not having a really steady hand on the wheel and understanding what’s happening underneath all of this. If you don’t take advantage of these things, not only from an investment perspective, but a tax perspective, that people can come back at you later and that can get ugly. As an example, if you’re in a long short situation and someone passes away, in my mind, you want to wind that down as fast as possible because you don’t want liability to … all of a sudden balloon on you and then all of a sudden the beneficiaries of these states say well why didn’t you wind this down? Brent Sullivan (32:45.034)I think that’s one of the most interesting planning opportunities that I’m getting into the weeds in now. And so that’s like, know, just stepping all the way back. If we’ve got a portfolio again, that’s got margin extension and shorts, those are liabilities like on the household balance sheet or on the estate. Then the typical default behavior is that the estate has to settle all liabilities. Now, of course, if you don’t want to settle the liabilities, you want to exclude these assets from the estate using some vehicle. There’s multiple options. Could be a trust, could be an LLC, family limited partnership, a bunch of different solutions to ensuring continuity if that is the family’s priority. But then to your point, and it’s such a good one, it’s just like, if you do want to use a vehicle that requires a trustee, does the trustee know what’s going on here? Do they understand that there’s an alpha model and that the alpha model introduces tracking error into the family circumstances and that the portfolio has leverage attached to it? Now here’s an analogous case here, which might be real estate, The entire balance sheet of the asset passes. I think this is a very common situation in estate planning. Is that a suitable analogy for what’s happening with long short mandates? That investors want to keep on for decades? There are reasons for doing that, by the way. I mean, part of the reason is that they just want to keep the alpha exposure. Like, hey, this thing is great. I love this relative value. It’s market neutral. Cool, like let’s keep this going. Another thing is that if the assets are in the estate and someone passes. We’re going to settle and if we have unused capital losses, they essentially evaporate. They don’t pass on. Okay. But if these assets are excluded from the estate, those losses are part of the balance sheet. They just like keep on, they can be continually used by future generations. There are a lot of just different interesting concerns here. To your earlier point, are trustees familiar with what’s going on? Maybe this is actually all routine and I’m just not privy to that, but I think, yeah, I mean. Frazer Rice (34:51.417)I’ll tell you right now it’s not. The whole body of law has evolved that way so that there’s a concept called directed trusts. The functions are bifurcated. the mailbox admin component can be one person or one institution. The distribution decisions can be more family oriented, et cetera. That can be a group of people or an institution. And then the investment part, that can be a different group of people or an institution. a lot of people got frustrated with the idea of having a bank sort of taking control of all that. Their gut instinct is going to be to diversify because they don’t want to take any investment risk because if something goes wrong, it’s going to be the, you know, the beneficiary on one hand 25 years from now who sues and says, well, you know, why did you do that? In a more familial situation. The trust law has really, in a sense, stepped ahead of some of these concepts, probably really to deal with the real estate wealth that you were describing before. These new tax alpha strategies are becoming much, much more of an asset and much more of a short and long-term asset that A, have to be taken seriously, and then B, I think have to be managed much more adroitly than I think the typical trustee can deal with. Brent Sullivan (36:08.388)Yeah, especially when talking about nuanced expressions of planning. When we’re talking about utilizing these losses very deliberately for a specific purpose. Whether it’s for the trust itself. Because the trust is a taxpayer, it’s got compressed brackets, all of that is a planning opportunity. How is a trustee gonna handle all that? That seems nuanced to me, but it also seems like there’s incentive, I guess, at that point for the… The assets to pass to the heirs like almost as soon as possible for the trustee to mitigate liability. Is is my understanding right there? mean, like. Frazer Rice (36:46.373)So the short answer is yes. I mean, if you’re a trustee, you’re set up to be investing as prudently as possible. The real leap forward in the last five years, is these tax tools have become so powerful so quickly. Prudence now has to be looked at on a pre-tax investment perspective and a post-tax perspective. Then the other sort of component of that is if you’re the trustee of a limited vehicle, just a trust. Whereas you’re advising a whole family and sort of going in between individual ownership and trustee ownership. Pre estate and post estate and things like that. It’s not fair to take somebody to task for that. Especially if they’re the trustee of a specific trust from a pure legal perspective. I see a big thing coming down the pike. Someday where someone said, the trustee did not take advantage of the tools that were available to us. And we had a tax bill that we shouldn’t have paid. whether shouldn’t, shouldn’t’s doing a lot of work there. And there’s probably going to be a 95 page brief describing the underpinnings of shouldn’t. But that’s something that I think modern trustees, especially in the directed world. Modern investment directors of these trusts are going to have to really understand well. I think they understand that well in the real estate sense. All the 1031 exchange things have become sort of fait accompli knowledge for people who own that. These new tax rules on the investment side are going to be important to digest and understand. Both from a strict trustee in the trustee role, but the advisors that are advising. Brent Sullivan (38:40.496)I mean, you made this incredible point. The power of these strategies is that it gives additional planning flexibility to advisors. And now you’re saying, OK, trustees also have this additional flexibility. Are they going to be taken to task for not prudently administering the “tax assets” that are sitting on the trust balance sheet now? That’s a really interesting concept. It’s sort of like if we zoom out we’re saying like these products are actually quite powerful. It’s funny to think about somebody being held accountable for not exercising or using them to their full potential. And that’s an interesting wrinkle, but it’s suffice it to say investors are, I think, well served by these products. I don’t want to go too far there, but I want to say that these are planning capabilities. These are important arrows in the quiver. Frazer Rice (39:13.945)No question. Brent Sullivan (39:39.894)They have a suitable profile for an investment household. And I think in certain circumstances, they are just incredibly useful planning devices, especially multi-generation. Frazer Rice (39:53.518)Question. Let’s stop there because I think we could go on for four hours. Frankly I need to get my research hat on to know what I’m talking about for four hours. What a treat and Brent how do we how do people get a hold of your blog? How do they find you and stay in touch with your work? Brent Sullivan (40:14.004)I’m sorry, I’m very obnoxiously on LinkedIn all the time. This makes some folks shame on us. We’re on the cringe platform, but just having a ball there, it’s fun. But yeah, LinkedIn, you can just search for me, just Brent Sullivan. And then my blog is taxalfainsider.com. And I’m in market three times a week. So new stuff, and this is usually expert interviews. It’s oftentimes really, I think, some novel research on Frazer Rice (40:17.527)Me too. Frazer Rice (40:23.158)Exactly. Brent Sullivan (40:43.95)These issues specifically. I’m really talking about core portfolio management and nowadays spending a lot more time in estate investigations. So this is highly relevant for me anyway. You can find me at TaxAlphaInsider.com. Frazer Rice (40:55.563)Well, and for listeners and watchers on the show, I highly endorse it. learn a lot every time it pops up.I’s got a nice little dose of humor attached to it too, so it’s a lot of fun to read. Brent Sullivan (41:08.304)Yeah, mean, you know, we’ve got to keep it light, serious. I mean, this work is deadly serious. We need a refresher every once in a while, just because it’s, yeah, because it’s hard work. Frazer Rice (41:20.153)No question. Brent, thanks for being on. https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/ Further Reading on the Wealth Tax

We go inside the the enormity, complication, and notoriety of the BEZOS PRE-NUP AGREEMENT with divorce attorney, MARILYN CHINITZ of BLANK ROME. https://youtu.be/nMMp6He056Y https://open.spotify.com/episode/39KMPMRhwGfYbdZVMJHEan?si=36c5c8a927bf4a6f Outline of the ISSUES INSIDE the BEZOS PRE-NUP General Concepts What happens without a pre-nup? Process for disclosing assets Previous marriages and those pre/post-nups? Community vs Equitable Distribution (Does the Pre-Nup contract this away?) Separate property Outside trusts?  Estate Planning? Pre-nup vs ultra high net worth pre-nup Financial Considerations (and Complication) Non-Financial- NDA, media activity, scope of negotiations, data and tech issues Let’s go through the General Fact Pattern High Profile Asymmetric Net Worths Kids? Which state is used for choice of law? Portability?  How do you make sure this has teeth?  (Coercion penalties) Spousal support / alimony? Escalator or sunset clauses? Disqualifying or  “infidelity” or “weight gain” clauses? What happens if children? Other constituencies – charities, businesses, political causes etc  Integration with estate documents, life insurance, other vehicles Is there a check-in every five years? What else can we learn from what is inside the Bezos Pre-Nup? Transcript Frazer Rice (00:02.07) – Inside the Bezos Pre-Nup Welcome aboard, Marilyn. Marilyn Chinitz (00:04.088) Thank you, really nice to be here and nice to talk to you about what’s inside the Bezos Pre-Nup. Frazer Rice (00:07.541) We sort of regaled ourselves with a mutual friend and we’re already, I feel like we’re already related. That’s right. So we’re going to talk a little bit about probably one of the highest profile marriages in the world that just happened with the Bezos Sanchez union and get inside the Bezos pre-Nup. But for just for a little bit here, let’s talk about what happens in a sort of family law divorce setting. Marilyn Chinitz (00:13.39) Your best and glorious buddies are ready. Frazer Rice (00:35.232) With general concepts because we’re going to be diving into some specifics with the case study here. What happens when something goes wrong and we have a divorce that happens without a prenup? Marilyn Chinitz (00:46.734) So it depends what state you’re in. If you’re in a state like New York, then we have equitable distribution laws. If you’re in a state like community property in California, then those laws are very different. So if you have no prenup, and a lot of people don’t because they start their marriage with very little assets, and everything that you acquired during your marriage is now subject to a division. Frazer Rice (00:49.569) Of course. Marilyn Chinitz (01:15.918) And what happens is you start to trace the assets and you look at, what do I have? You look at homes that you purchase, real estate that you purchase, stocks, securities that you purchased. It doesn’t matter in whose name the asset is held. It’s a marital asset if it was acquired during the marriage and it was not gifted or inherited. If you come into the marriage with assets and you have no prenuptial agreement and you keep those separate property assets clean, and I’ll explain what that means. When they go up in value because you actively caused their appreciation, they may be subject to a marital claim, the appreciation aspect. If you… have an asset that went up in value because of passive reasons and you kept that asset separate, it will remain separate property. So let’s talk about an example. If I owned a building before I got married and that building was worth five million dollars and then I get married and years later I get divorced, that building is now worth twenty million dollars. It appreciated by 15 million. Did it appreciate because of market fluctuation, because the market went up, real estate did better? Or did it appreciate in value because I managed it, I collected the rent, I made sure the repairs were done, I made renovations to the building, and therefore it went up in value. If it went up in value during the marriage because I actively did something, I renovated, I took care of the building, I managed the building. That appreciation from five million to 20 million is gonna be considered marital. Then the question is, what percentage does the other spouse get? Do they get 10 % of the appreciation or 50 % of the appreciation? If that asset went up because of market fluctuation, I sat back, I did nothing, the market went sky high. Marilyn Chinitz (03:38.905) Then that property will remain separate property and the appreciation is separate. So you have to look at those different factors. But other than that, if you come into the marriage with no assets and you create a marital estate and you have no pre-nup, that marital estate is going to be divided. Now the question is, how is it going to be divided? If you’re in an equitable distribution state, Frazer Rice (04:04.907) Right. Marilyn Chinitz (04:08.718) What does that mean? It means what a particular judge feels in a particular courtroom on a particular day. What does equitable mean? It’s completely subjective. So did the other spouse take care of two, three children while you were managing that property? Did the other spouse work but supported you? Or did the other spouse do their own thing and had no real contribution? It’s very fact specific. And if you can show that the spouse really contributed in a meaningful way while you were running your business or running your properties, I took care of the children, I took care of the home, I took care of you, then the court is likely to give you a more substantial percentage interest of that appreciation. And in New York, for example, equitable, and then we’ll talk about community, California, for example, generally, Bank accounts, retirement accounts, stock security accounts are going to be divided pretty much 50-50. Where the court will not give 50-50 is if it’s a business. And then the court can go anywhere from 10%, 15%, 20%, up to maybe 40 % in unusual cases. What do those cases look like? They work together in the business. They took care of things together. It’s very unusual for a court to give 40 % interest to the non-working spouse unless they were really actively involved in the business. Now, conversely, take California, which is a community property. When you get married and you acquire property in California, that’s 50-50 off the bat. Now, why does that become really important? We’re seeing a lot of cases where people have really created a lot of wealth in their marriage and they are correctly and smartly putting some of that wealth into trust. They’re gifting it to a trust for their children. New York, for example, is a title state. A title state means if I own the asset during my marriage, I can sell it, I can gift it, I can do whatever I want with it. Marilyn Chinitz (06:33.718) As long as there’s no divorce. If you are in a community property state, you can’t do that because that person, that spouse already owns 50%. It’s almost jointly owned. So you can’t give away a marital asset unless you consult with me, your spouse, unless you ask me, is it okay? So in New York, if I wanted to take an asset, an interest that I own during the marriage, it’s a marital asset, but because there’s no divorce, there’s nothing that prohibits me, I gift it to a trust, I have the right to do that. In California, I may not have the right to do that unless I got my spouse’s consent. So, number one, what’s critically important is you need to know what the laws are in the different states. Now, Sometimes people get married. They get married in New York. They enter into a prenuptial agreement in New York. But now they move to California that has very different laws. And if they thought they were going to move to California, then you want to make sure as a New York lawyer to advise the client, we need to engage California counsel. We need to find out what their laws are so that your prenup is portable, it could be enforced in a different jurisdiction. Frazer Rice (08:03.559)So choice of law, obviously very important. Then I would say sort of the process and hygiene around using assets and deciding what happens jointly versus what stays separate is something that’s important to manage going forward. How do you think about that with clients? Marilyn Chinitz (08:20.346)So, I mean, interestingly enough, when I do a, let’s talk about prenups for a minute. Because when I do a prenup for a client, we have a check-in every year. We go to lunch. We talk about what changes, what’s going on. Does the agreement need to be modified? So many times people will sign a prenuptial agreement, they put it away, they don’t even know where they put it. And 20 years later, sadly, somebody triggered. the terms of that agreement. Now they pull it out and they go, my God, everything’s changed. When we signed that agreement, he was only worth X amount. He’s now 20 times wealthier, but I didn’t increase anything. That’s not fair. If the agreement is…an agreement that you entered into with the advice of counsel. If the agreement had full financial disclosure, if the agreement was negotiated, if you had your own counsel, etc., all the bells and whistles, it may be an unfair agreement, but it’s going to be enforceable unless it is unconscionable. So what does unconscionable mean? Unconscionable means shocking to the conscience. So I represented, and I could say it because it was in the media, Liba Icahn, married to Carl Icahn. And he had a prenuptial agreement prepared, and she signed it. Years later, he decided he wanted a divorce. And she argued to the court, I was not her first lawyer. I was not her second lawyer, I was her third lawyer. And I’ll tell you why that was important. She argued to the court that the agreement is unconscionable. He’s now worth several billions of dollars, and all I got was X amount of dollars. That’s unconscionable shocking to the conscience. And the court, lower court said, well, I’m sorry. That’s a lot of money for most people. And by the way, in the statement of net worth, there’s a notation that there’s a diamond emerald necklace worth Frazer Rice (10:23.239)A lot!. Marilyn Chinitz (10:42.56)A million and a half dollars. So coupled with that, there’s nothing unconscionable about your agreement. Now, it was appealed, but the more important thing is that the court said the following. You are barred by the statute of limitations to set aside the agreement. So years ago, you had six years to set aside a contract. Now, if you’re happily married, You’re not going to wake up and go, hmm, honey, it’s six years. I got to set aside that agreement. You don’t do that. And so finally, a judge in New York County, Phyllis Gangel-Jacob, wrote a decision that said, wait a minute, that’s unfair. We’re going to toll the statute. Because people, they’re happily married, they’re not going to wake up and say, I’ve got to change the agreement. Frazer Rice (11:34.961)Right. Marilyn Chinitz (11:35.151)You’re going to toll the statue until there’s a triggering event. And then you have six years to set it aside. Now you would think a seasoned lawyer would know that we talked about knowing the law in different states. You’ve got to know the law in your own state. So in New York County, the first department, Phyllis Gangel Jacobs said, toll the statue. That would have meant that Mrs. Icahn would not have been barred by the Statue of Limitation. She could have brought her case to set aside the agreement. In Westchester County, that’s the second department, they had a totally different law. They went by a six-year Statue of Limitation. So had her lawyer made inquiry about how that…ruling how the statute of limitation works in the different departments, they would have probably started the action in New York County because they owned a home in New York, not just in Westchester. So when we were chit chatting before we went on, I said to you, it’s all about being in the right hands. You can’t be sloppy in this business. It’s too complicated. It’s too detailed. You’ve got to have an attorney who really goes out of their way to find out what’s the best jurisdiction, what are the different rules, what are the different laws. I had a client in Hong Kong and she would have jurisdiction in New York or Hong Kong. We then retained Hong Kong Council to find out what would be the benefit if we brought the action there versus here. I had a similar situation a year ago where I had a client who had jurisdiction in Germany and jurisdiction in New York. That was critical because her husband came from a very wealthy family and there was a lot of separate property. In New York had she brought the action, the court would have said separate property, you don’t get any portion of it. It’s remained intact, no commingling, no transmutation. That’s his. In Germany, they throw everything into the pot. So I called German council and I said to her, you need to go and pursue this in Germany. It was the best decision because in Germany, she had the access to all the assets. Frazer Rice (14:04.732)Again, it’s so hyper-specific. You’ve got to know, as you said, not only the state, but in the state, how things work. Whenever I wouldn’t go as far as to say I advise, I really more issue spot. I had a friend of mine, it wasn’t a client, but basically New York, Florida, Dallas, Texas, and then got married in Ireland. I said, you’ve got a lot of things to work out here because I’m not sure which one’s the best. Marilyn Chinitz (14:11.416)Correct.Yeah. Frazer Rice (14:32.63)And it turned out to be a good thing for him five years later on when it didn’t work. And he ended up using Florida for whatever reason that was the one to choose. So let’s apply. Marilyn Chinitz (14:44.654)You reminded me of something that I did want to bring up because it’s very interesting. So a lot of people will get married and they’ll have these big weddings and big affairs and invitations and come to our wedding and it’s a destination wedding and there is all the bells and whistles. But what happens if you didn’t have somebody to really officiate the wedding? It was someone who just signed up with a website. Marilyn Chinitz (15:12.556)What happens if you did not get the marriage license? And we’re seeing a lot of cases like that, where people thought they were married and they’re not married. Frazer Rice (15:24.008)Those technicalities could just cave your knee in. Marilyn Chinitz (15:26.348)Right. that’s right. So then you look fact specific. Well, let’s see what they did inside the Bezos Pre-Nup. Let’s see how they held themselves out. So it is so many complexities. And that’s why it’s really important that you need to have an attorney who’s in the know who asked you these questions. Frazer Rice (15:42.747)So let’s apply some of these concepts that are inside the Bezos Pre-Nup. First of all, high profile. So I imagine in the prenup that you’ve got not only the financial, which has its own elements to it, but the non-financial, the NDAs, media activity, what the scope of negotiations are, even so far as the things like data and tech issues and privacy. How do you think about that in those big high profile cases? Marilyn Chinitz (16:08.782)I will tell you, I was in Italy at the time they got married in Italy. And it was like on every station in Italian, but it didn’t matter. was all you’re doing is looking at all these beautiful people and beautiful dresses. And it was very elaborate. The thing that I found very interesting is what happened before the wedding? So what happened before the wedding is Bezos, I think, sold Frazer Rice (16:14.2)Right. Marilyn Chinitz (16:37.294)Over three million Amazon shares, generate about $700 million. Was that used for the wedding or as a gift or whatever? But I thought that was an interesting fact. So when you have a prenup like their prenup, number one, it was negotiated over a very extended period of time. And it was viewed not by one lawyer, not by two lawyers, by a team of Frazer Rice (17:02.797)Whole fleets! Marilyn Chinitz (17:05.966)Trust and estate lawyers, tax lawyers, real estate lawyers. This was structured as if it was a business merger. And it was carefully structured to withstand any kind of scrutiny, because there’s a lot at stake, obviously. He had already gone through a divorce where there was no prenup. And that resulted in a $38 billion award to the wife. I think that was great. because she started the company with him. But now you have a different situation where he had this massive wealth long before he got married. Amazon stock, Blue Origin, Washington Post, real estate, and the future appreciation of those assets, just to name a few. There’s a lot to protect here. And so clearly, there’s going to be a massive amount of financial disclosure. Because every prenup has to be accompanied by full financial disclosure. You can’t wave something when you don’t know what you’re waving to. Frazer Rice (18:13.657)Question. So, Lauren Sanchez gets a book of his finances that’s two feet thick minimum. At what point, the detail can be overwhelming and the marriage may not have ever happened if there was, let’s call it complete understanding of his financial situation. At what point do you sort of say, okay, here’s generally what we think he’s worth and therefore that number underpins? Marilyn Chinitz (18:41.868)Well, here’s how you do it. It’s not that complicated. It’s called a title agreement. Everything’s in my name is going to be mine. Anything in your name, Lauren, will be yours. What will be marital is what we put in joint names. It’s very clean way of keeping it. So if he buys interest in future companies and private investments, properties, et cetera, and he puts it in his name, then under that title agreement, it’s his. It doesn’t get sloppy. If she purchases something, it’s in her name, it’s hers. If they purchase something together and they put it in joint names, it will be a marital. But he may say, I put in some separate property. I get that back off the top, it comes to me. Frazer Rice (19:32.706)So once we get that in place, the idea of if something were to go wrong five or 10 or 20 years from now, the concept of alimony or spousal income or any other sort of payout, how does that happen in the negotiation? Marilyn Chinitz (19:51.159) Inside the Bezos Pre-NupSo, you know, you have to look at, let’s put it this way, if Lauren Sanchez is gonna walk away with $400 million, she’s not getting support, right? That’s obvious. And we know she’s not walking away with $20 million. You could have in the agreement that for every year that we’re married, I give you a million dollars, that’s your separate property, you do whatever you want with it. That’s not an uncommon situation for very wealthy people. But what he wants to do is to make sure in the agreement that she does have wealth so that it’s a fair agreement and that he does create marital wealth that they end up sharing. So I’m sure some of the houses and I believe that they already have homes that are in joint names under the agreement will probably be a marital asset. So off the bat she’s probably going to end up with a significant amount of wealth. If this marriage lasts a long time, do they put in a sunset clause? Most likely not. know, sunset clauses can be very dangerous and clearly under the law, he’s entitled to all the separate property because he earned it long before he ever met her. So I don’t expect that there is a sunset clause in there. But let’s face it, you can gift your spouse whatever you want. But it doesn’t have to be in the agreement. So if he is so happy and the marriage is fantastic and they live a very long time, he may never look at this agreement and he may give her a substantial amount of assets jointly or in her name and make it very, very fair. What happens though, a prenup is not only what happens in the event of divorce, it’s also what happens in the event of a death in an intact marriage. I’m sure that he wants to fully protect her. If they’re not divorced and God forbid he dies and it’s an intact marriage, there could be a marital trust that’s set up, you know, that has $200 million or $400 million or more. She gets the interest on that so that she’s well taken care of for the rest of her life. And, and, you know, everybody says that he’s an incredibly kind, generous person. Marilyn Chinitz (22:18.156)I’m sure he’s also made provisions for her children inside the Bezos pre-nup and estate planning. Frazer Rice (22:21.111)How does this integrate with the other pre or post-nup or the divorce settlement with the first wife and then with those estate planning documents? That to me, you’ve got a conference room with the marital family law attorneys, the estate planning attorneys, her attorneys. How does everybody stay organized on that front? Marilyn Chinitz (22:45.774)So it’s something that we do all the time and you separate it out. Look, there’s a lot of issues that get involved in these kind of agreements and settlements and as I said, a business merger. There are tax issues, right? So if he gifted her anything before marriage, that’s a taxable gift. So… The estate lawyers know that nothing should be given to her until after their marriage. And then these trusts are very sophisticated. And you separate out what’s trust related. When you put assets into a trust, they’re no longer part of the marital estate. They now belong to a separate entity. And so these trust and estate lawyers carefully craft trust that are going to accomplish different things. One, could be to take care of a spouse’s health, education, welfare. One could be to distribute property or principal. It’s not uncommon. It’s very common when there are agreements like this that you have people who are of extraordinary wealth. Mackenzie, the prior wife, has nothing to do with this at all because she got her Amazon shares. And I’m sure those shares now are worth probably $180 or $200 or $300 million because they’ve gone up. But the first wife issue, there’s no issue. If you got $38 million, you’re not a support candidate. He doesn’t have to consider it that. So this is really being looked at as if there are no other factors involved. But this is probably why the negotiation of this agreement took place over a long period of time. Frazer Rice (24:44.802)For the some further down the pike certainly not at the Bezos level but let’s say at the high net worth level where you’ve got outside trusts that you that you don’t have ready access to there’s a trustee that can make payments at a discretionary basis. Do you have to be careful as far as how you receive money that’s distributed from a trust so it doesn’t get tainted ultimately. The other spouse if they’re divorcing that that’s not part of, you know, maybe a standard of living that they’d become accustomed to. Marilyn Chinitz (25:18.836) INSIDE THE BEZOS PRE-NUPThat’s a very, very good question. So I’ll give you an example. Joe and Mary marry. Mary comes from a wealthy family. Her family set up a trust and put $20 million in that trust for her, for her benefit. And during the marriage, he made a lot of money. Marilyn Chinitz (25:42.2)I’m sorry. During the marriage, he made a lot of money. They lived a good lifestyle. Her parents would on occasion distribute money to her. But it was a discretionary distribution. 20 years later, they divorced. And he said, I don’t want to pay you any support. We’ll divide up the assets, but you get no support. And the reason why you get no support is you’ve been getting distributions from your parents. That’s more than enough to take care of your expenses. And she said, That’s not fair. It’s discretionary. I don’t know when my parents are going to distribute. I can’t force them to distribute. And therefore, I’m asking the court for support. Well, the court agreed with her. The court said it’s a discretionary trust. And therefore, we can’t she can’t bank on when she’s going to get it because she may not get it. You must pay support. So the court will look at again, fact specific. Are they discretionary or are non-discretionary? If she was getting distributions on a regular basis, the court would impute that, its income to her, they would consider those distributions because they’re non-discretionary. She’s getting them, she could rely upon them. She could use it to pay her own expenses and her own support. Frazer Rice (27:08.766)Is it good hygiene, I guess, to have it go into an account in her name as opposed to a joint account? Marilyn Chinitz (27:16.842)If you want, well see, you’re raising really good questions. Here’s why. If you want something to be separate property because of the gift of an asset, if you put it into joint names once you get it, you’ve now commingled it. You transmuted what was separate and you’ve now made it marital. So if you get a distribution from a trust or a gift, You’re going to have to put that in a separate account in your name only. And let’s say you buy stocks and your husband works for Morgan Stanley. And he says, well, wait a minute. I can trade that account for you. I’ll make it go up in value. Once he does that, he’s actively contributing to the appreciation. He will now have a claim. I caused that account to go from 800,000 to 5 million. I want a piece of the appreciation. So when I said to you earlier, I meet with clients a year later, and it’s really to say, keep your assets separate. Do not commingle them. If you did, then you may have lost them. What does the financial circumstance look like now? People can amend a prenup. They can enter into a postnup. But you’ve got to look at the agreement to know what you signed. If you look too late, it may be too late. Frazer Rice (28:41.63)So I hate to wind down on this because we’ve gone through and there is a ton of unbelievable information here. Most of us do not have the Bezos Sanchez wealth, not only the asymmetry, but the size that we’re talking about here. What are some good lessons for people to take away? Either going ahead and marrying or if circumstances changed after the marriage? Marilyn Chinitz (29:07.63) So I think there’s so much wealth of information out there. I think number one if you are I Think prenups are great. First of all, why because you learn about the other person’s or or debt So a lot of times people live a very lavish lifestyle. They have a beautiful apartment. But you don’t know if there’s a mortgage on that apartment. They have a beautiful home in the Hamptons but is at their home. They drive a fancy car, but is there dead on it. So when you enter into a prenup, you have to make full financial disclosure and all you find out, wait a minute, I thought you own that apartment. You don’t own that apartment? Or you bought that? Did you borrow against it and it’s all debt? Or you owe this to your former spouse? And now all of a sudden you’re finding out the full picture. You can make a decision, yes I want to marry that person, but you’re in the no. Being in the no is important on every scale. So if you’re to enter into a prenuptial agreement, number one, you want to get the best attorney, and you need to know and have the time to really negotiate the terms, you have to understand what do I want to accomplish? Do I want to create a marital estate? I recognize you came into the marriage, let’s keep that separate. I agree to that. But anything that we build together, I want that marital. You take the time to negotiate. You don’t rush into it. Never sign an agreement given to you on the heels of a marriage. Do not feel pressure. You’re not doing yourself a service at all. So having good counsel, financial people, a good team of professionals, I find is super, super helpful. And then in terms of… What happens after marriage? Again, stay in the know. Don’t tell me that you didn’t know that there was a mortgage on your house. That he refinanced three times and you signed the documents and you have no equity in the home. So ask your spouse, tell me what’s going on. Sit down every year. Marilyn Chinitz (31:30.146) (INSIDE THE BEZOS PRE-NUP)Can we look together and figure out what we have because if God forbid something happens to you I want to make sure the children and I are okay. Can we go and meet with a trust and a state attorney because we need to understand in case anything happens how do we set things up. If you just close your eyes and you bury yourself you’ve buried all the information and who wants to do that in life. I think no one should be afraid to ask questions nobody should be if you are then you’re in the wrong marriage. But you have every right to know, what do we have? What kind of debt do we have? How would we pay this off? How are we protecting ourselves in the event something happens? Should we get life insurance? Should we put some assets in trust so that it grows in the trust tax free? There are important decisions to make in marriage, just like there are important decisions to make in business. You don’t enter into a business transaction and sit back and hope everything goes well. You are a part of things and make decisions. And that’s what you have to do in your marriage. Frazer Rice (32:35.876)Great stuff. Marilyn, how do our listeners slash watchers find you? Marilyn Chinitz (32:39.51)So I am a partner at BlankRome, B-L-A-N-K-R-O-M-E. I’m in the matrimonial department. If you go on the website, you’ll see my name, my email, my phone number. And it was pleasure talking to you. Ask great questions. Frazer Rice (32:54.268) Inside the Bezos Pre-NupLikewise, thank you. Other Resources Related to Pre-Nup Planning and Inside the BEZOS Pre-Nup LINKEDIN FORTUNE ON INSIDE THE BEZOS PRE NUP PAST EPISODE: ULTRA-HIGH NET WORTH DIVORCE WITH BROOKE SUMMERHILL https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/ https://www.northcarolinadivorcelawyersblog.com/billionaire-vows-what-jeff-bezos-prenup-teaches-us-about-high-stakes-marriage-planning/ Inside the Bezos Pre-Nup

The Business of Estate Planning is in the midst of a revolution- or is it? BRANDON RAINS discusses advising clients responsibly, profitability, and the “firm of the future.” https://youtu.be/a7VdZvrH9LI BRANDON RAINS from the Denver-based Rains Law Firm and I discuss estate planning in an era of artificial intelligence, scalability, the democratization of advice being delivered by non-lawyers and the fun and games that exist when people die and plans go into action. https://open.spotify.com/episode/6FeR3ACd8vXVkKyMZODnlu?si=Q0XrGGMRR92usDUiKcsT9g Outline for the BUSINESS OF ESTATE PLANNING What is involved with the process of educating/advising a person or family ? Good judgement, discretion, and experience is something worth paying for What does drafting and implementing involve? The benefits of “Professional Liability” and experience The intersection with technology / AI / drafting tools The dangers of DIY How to be a good client and get to adult conversations sooner Puttng thought into staffing important roles (and backups) Ongoing maintenance / administration Transcript Frazer Rice (00:02.954)I’m Frazer Rice. Today we have Brandon Rains. He is a practitioner in Colorado and owns his law firm in Denver. We’re going to talk a little bit about the business of estate planning and what it’s like to have an ongoing profitable enterprise when trying to help people arrange their affairs and do the right thing as far as advising. Brandon, welcome aboard. Brandon Rains (00:22.222) Thanks, Frazer. Pleasure to be here. Frazer Rice (00:23.926) So we’ve had a nice back and forth on the topic and maybe tell us a little bit about your practice generally and what you do, who your ideal client is, and then we can go into why we think it’s important to get paid for this type of advice. Brandon Rains (00:42.254) I my own firm about nine years ago, the Raines Law Firm, very originally and imaginatively named. I was leaving my previous firm, was interviewing with a bunch of other attorneys trying to find a good landing spot, and it just kind of hit home to me through those conversations and kind of debriefing with my mentor that they’re lots of times the state planning attorneys interact with their clients in the same way, generally speaking across the board. In some of those aspects, just not necessarily how I’m wired as a person, not that it’s necessarily better or worse or anything like that. I just felt that there might be more space and to kind of throw my elbows around within my own firm to kind of figure out what that could look like for me and serve clients in the best way possible. so started from scratch and still here and alive and kicking. Frazer Rice (01:38.028) So one of the things that I think is interesting is, I talk to people all the time and they indicate that they don’t understand the process of drafting and implementing and what does a lawyer actually do in putting together in a state plan? Take us through little bit about the process of advising and educating a client to help them understand what they’re identifying as far as an issue is concerned and then solving it. Brandon Rains (02:04.942) Well, I mean, think some of it is some of that answer is kind of what you would expect, right, which is asking good questions and listening. Beyond that, I think a lot of attorneys are going to be really different. I know that some attorneys that I’ve talked to, they have very strong feelings about our role to make recommendations, sometimes even tell the client what’s best for them or not. I think there are some situations where that makes sense. Again, it’s even though that’s not how I go about it, I think that they have, there’s some good sense there too. Some, think there’s a lot of decisions that can be personal that the client is best positioned to make those decisions of. so for me personally, kind of shy away from making recommendations for the most part, helping them have the information and advice and counsel that they’re looking for, for them to decide what’s best for them and their family. That’s kind of the tack that I take. For other attorneys, I know that they have stronger feelings. It’s like, we are not going to do this. This is not a good option. This is, you know, the best ones might say that and then explain why. But generally speaking, walking the clients through the decision-making process, I think offering that advice, being able to explain things in layman’s terms is so incredibly vital and important. Throwing… Legal jargon in our world doesn’t really offer too much help to people. They’re just going to end up just dazed and confused and going along with whatever you say because they don’t understand any better. I think deep down at the end of the day, that’s not really anything that what anybody wants. then, you know, understanding the questions that we’re asking, the decisions that we’re guiding our clients through is vital. as I understand, we’re gonna be talking even more about later on the benefits of working with an attorney as opposed to other options out there. But I think it’s kind of touching on that. And then on the back office side, you know, there’s over the last 10, 15 years, the growth of centralized drafting software programs has proliferated. Brandon Rains (04:31.982) Whereas before each firm would have their own templates and Word documents, copy, replace, copy, paste, and replace, and stuff like that. I know that there still some firms that still prefer to do it that way. But third party companies providing the forms that company, that attorneys or their staff use.has kind of proliferated. I personally am in that camp just being able to learn from hundreds or thousands of other attorneys and their experiences and the process of keeping those documents up to date with legal changes. It’s a lot easier with something like that. But sometimes that sense of ownership of those documents is lessened when someone else has prepared them and updating them and maintaining them. Sometimes it’s easy to take it for granted. But the process of drafting, the basic principles of drafting of legal advice are the same, really is we need to match the language that we prepare for our clients to their goals and their vision, their hopes, their dreams, their concerns. We really kind of capture all of that in the legal documents and do it in a way that’s understandable and ultimately is going to be effective after our clients have passed away. Then of course, walking clients through them and explaining it in the hopes that maybe a week or two after they’ve signed their documents, they might remember a thing or two of what they’ve been fighting. Frazer Rice (06:14.719) on the business of estate planning Always a challenge. One of the things I tell people is that you’re hiring an attorney to help you out on these situations because you’re going through it something that’s very complicated and opaque with huge ramifications for your life and after your life. With this being usually the first and only time that they’re dealing with that, it’s helpful to have a very well-equipped sherpa to help you along that journey. But then you’re also paying for the good judgment, the discretion and the experience that working with hundreds of other situations brings to bear to the instant case. describe that experience for me. You came from another firm, you decided to go this route and maybe a case study or something like that where a client really was able to find benefit from your having dealt with something similarly that occurred in your past experience. Brandon Rains (07:17.196) Yeah, I mean it’s you know there’s so many examples, but so it’s interesting how often clients come in. Like even just this morning, had a client, a couple come in, we had an initial meeting and kind of partway through that conversation, I was like, hey, do you have any questions for me in any way? It was kind of towards the beginning of the meeting a little bit. They were like, we don’t even know, we don’t know. We don’t even have the knowledge base to be able to ask you any questions in the first place. It’s like, okay, that’s fair. And so sometimes that’s just subject matter knowledge that is really helpful. I think a lot of times when couples and families benefit from our, to use your terms, your good judgment, discretion, and experience, we see that a lot when clients are making decisions. So it’s what makes sense, know, it’s, it’s, especially when children are struggling, right? I had some clients that I was meeting with earlier this week. We were helping them make decisions one of their one of their children is Just an amazing go-getter and the other one is struggling and so we had a real conversation about whether or not they should give money to their son or actually skip their son and go with give it to their grandson or granddaughter or whoever it was right, but just skipping that generation and walking them through that decision making process. Because some people, for example, think they don’t realize all the options regarding distributions to their loved ones. think it’s just everything. The only option they have is outright distributions, which is giving it to them all at once. Well, I don’t trust my child to give them everything all at once for drug addictions, manipulation, their spendthrift, whatever. So I just need to disinherit them. Sometimes clients have legitimately, literally come in with that mentality. When we talk to them and help them understand that there are more options than that to spread those distributions out over time and protect from those potential bad situations. That burden is just completely lifted off of their shoulders. It’s like, okay, I can give them money, but I can give it to them in a way that is best setting them up for success with some protections, with some guideposts, guidelines with some restraints because we think that’s really what their life and situation calls for. I’m gonna kind of draw an analogy here and I like yours with a sherpa, right? Where, you know, you can go on a, you can climb Mount Everest on your own or you can climb Mount Everest, you know, with a sherpa or you can climb it with a group. Right? You can kind of imagine the different levels of success there. The analogy that I tend to draw, unfortunately, Harkins is back to school time, but that was kind of the thing that came to me. Working with an attorney is like working, is taking a test with the teacher sitting right there beside you explaining the principles, reviewing the question, helping you understand the answers, and helping to quote unquote make sure that you get 100 % on that test, right? That’s what like working with an attorney can be like. Whereas doing it on your own is, you know, and I know that we’ve talked about to kind of talking about this with do it yourself options for estate planning. It’s like just taking the test on your own. Maybe open book, right, because Google kind of serves that purpose. But there’s no outside eyes. There’s no like true explanations. And if you’ve done any search on Google, you know it’s not that hard to find contradictory information. I’ve had clients come in with wrong understanding based off of Google. Now the tough part about is taking a test on your own. I don’t know about you, Frazier, but I always got 100 % on my tests until I got my grade back. And that’s the tough part. What’s especially hard with estate planning is you don’t get the grade back on your tests until after you’ve passed. There’s no extra credit. The grade is final. And you have to live with that. so there’s… Yeah, Frazer Rice (11:44.049) Yeah or others have to live with it even worse. Brandon Rains (12:09.618) You’re right, better said, right? Others have to live with that. And so it’s, you know, there’s something to be said about that. And there’s also a rise in, with companies that are DIY, they’re kind of talking to the financial advisors. There’s a big trend there of financial advisors walking their clients through the business of the estate planning process. setting aside any contentions or conversations about unauthorized practice of law and stuff like that. To go back to the teacher analogy, that’s like asking someone two or three years in school ahead of you for help, maybe like a tutoring type of a situation, but they’re ultimately still a student. They might have more experience than you, they might know more than you, but they don’t necessarily have the education. the hundreds of clients of qualifications, they don’t quite have that teacher certification, right, that has gone to school specifically for that, have been vetted and licensed by the state. There’s still a difference there. And I think there’s some real unforeseen or easily missed pitfalls with a, I’m gonna rely on a mentor type of a mentality rather than turning to a teacher. Now, of course, a mentor or a tutor or a fellow student may or may not have to pay for that, right? Obviously they’re gonna be paid less, because they don’t have the education, they don’t have the certification, stuff like that, than working with a teacher. But the teacher is the one who wrote the test, right? Who has studied the test, who has studied for… hours and hours and hours, the subject matter that goes into the knowledge, there’s still a real substantive difference there that kind of puts you and your loved ones in the best position to succeed, right, which is really where it is. Frazer Rice (14:20.987) To stretch that analogy further, I sit in the financial advisor role, at the multifamily office level, thinking about these issues. I have my thoughts and experiences and comments. It would not really occur to me NOT to use a lawyer. To take your analogy a bit further, having the teacher with you taking the test, but also having the mentor with you taking the test. Brandon Rains (14:47.245) on the business of estate planningYeah. Frazer Rice (14:49.295) That is better if there are really sort of qualitative aspects that need to be dealt with. Issues like: choice of trustee, do I favor one child over another? There may not be an exactly right answer. However, there can be a best answer through consensus building amongst three thoughtful people. One who’s extremely interested in it, and then the people who are sort of supporting of that. That joint approach to the business of estate planning I like that a lot better than the DIY. Equipping the client with digital tools to make a go of it themselves, and hope it turns out okay. Then maybe get a legal imprint or legal ratification elsewhere that isn’t really based on a relationship. I think ultimately people are looking for interactivity and they want that relationship. trend-wise, I think that’s going to argue for, certainly at some level. A return to in-person meetings and some more tactile interactions between client and advisor. Those team aspects are going to be that much more important in getting to the right result. Brandon Rains (16:12.448)I would agree with that. Some of my favorite meetings are… client, attorney, financial advisor, potentially accountant, all involved, right? Because we’re all addressing the subject matter from different angles, right? It’s when you get the tutor replacing the teacher, right? To kind of keep it industry agnostic, right? Whether that’s a financial advisor who’s trying to replace the estate planning attorney. Or the estate planning attorney who’s trying to place the financial advisor. That’s when you start running into, in my opinion at least, when you start running into different issues, right? You’re losing a team member. You’re getting people where it’s not their 24-7 type of a day job, right? But they believe that they can still do that, right? They can fill both roles or three roles or whatever. In my experience, that can run into issues. But yeah, multiple professionals addressing those conversations Frazer Rice (17:14.189)That’s because… Brandon Rains (17:19.248)those questions from their respective angles. It’s almost like the sum is greater than its parts, is my experience in those meetings add exponential value added rather than just purely linear. It’s an awesome dynamic. Frazer Rice (17:37.859)Exactly. think the other part too is that, you know, whereas we used to have to defend against the absence of information, I worry about the noise and the fact that, and I think the advisors can be affected by the noise too. And to have a couple of people surrounding the problem, I think mitigates that risk, doesn’t eliminate it, but to sort of have a back and forth and be able to make sure that the right course is brainstormed, workshopped, and then defended before being implemented, think that leads to a good result at the end of the day. Brandon Rains (18:15.95)Yeah, 100 % agree. Frazer Rice (18:17.773)It’s one of these things where that’s a lot of people and many times charging hourly or charging flat rates or things like that. People look at that and say, my gosh, I just wanted to get my estate plan done and get something in place. And now you’re telling me I’ve got expensive people on the hook to try to get this going. Part of me sort of says, look, there’s two levels of planning here. You have what you need to get done so that you’re not running naked through the park uh… and then then there is the deeper thoughtful estate planning, you’re trying to deal with taxes and creditors or things like that. How do you think about it in terms of the value added when when being in front of a client Brandon Rains (19:09.19)I think in a lot of ways it’s, you know, the biggest benefit of working with an attorney is the advice and the counsel and the experience, right? At this point… I haven’t done necessarily a count, but somewhere between 750 and a thousand different clients in the last decade, right? You combine that with just the knowledge that I’ve gained through studying, continuing education and stuff like that. It’s hard to replicate that from anybody else, right? Just as if I were trying to step into your shoes, it would take me 20-30 years to be able to fill in your shoes, right? Because that’s how long you’ve been doing this for. I think that’s something that we as professionals, especially over the last, don’t know, during this time from the information age and generative AI is going to be making it a really interesting thing for us to think about is how well do we explain the value that we bring to our clients and the families that we work with. For me, it’s the advice and counsel, the insights, the experience of this is what other people have decided. This is how I’ve seen this work out. And being able to take these abstract legal principles or even these experiences from other families, there’s always that question, I think, at the back of clients’ minds of like, okay, how is this going to impact my family? Whether it’s from a tax perspective, a control and access to assets perspective. What about family relationships perspective? Brandon Rains (20:57.006) Is this gonna help? What am I going to do? Is it gonna help them interact with these assets that we’re passing on to them in an appropriate way? Are they gonna interact with the world and with each other in a positive, constructive way? All of those things that we can do that I try to bring to the table as an estate planning attorney is to help them understand how these theoretical or not their experience can play out in their own family. Because that’s really what they’re looking for. They’re looking for clarity, they’re looking for comfort. Really the only benefit that clients get through their own estate plan is peace of mind. And so try to help them understand. The only way they can get peace of mind is not by, I would argue, true peace of mind is not just by making a decision. By making a well-informed, well-advised, well-counseled decision, taking all these different data points and being able to apply it to their own family, their own relationships, their own personality traits, their own characters, and the people that are involved, and to be able to say, okay, this is what I think is how people are going to engage with and interact with the estate plan with each other and by extension the world around them after they receive the distribution. So to me that’s the real crux of any value add for me at least. Frazer Rice (22:30.163)One of the things that people ask about is the analog world of estate planning and the new digital tools. Are they going to intersect? I use AI frequently. A variety of other tools help game out scenarios, look at documents, to do all sorts of things. I don’t think what we’re talking about is that the exclusion of technology, because I think technology is going to get us to have what I would describe as more adult discussions quicker. I’m wondering how your experience with technology so far, you talked about it a little bit about, you know, sort of having drafting capabilities and so on. Where do you see that going? Brandon Rains (23:13.74)Yeah, that’s a great question. I think a lot of estate planning attorneys use technology more than people might realize. There’s a difference between technology in the back office and technology on the client facing experience, right? There’s a difference there. Conversations with an attorney is human, right? I would say that’s not even analog, that’s human. And that’s something that… If AI ever replicates a human conversation, like really truly, that we as professionals can have and be just as accurate or more accurate with that advice, which is a whole different, that’s not as much of a given as we might like to think, then we’re all in trouble. But I think what technology does for the business of estate planning, and I’ve noticed with my own practice. Leveraging technology to create systems and processes to delegate to communicate within our internal team and know document sharing with a client or whatever that looks like that allows us to be more efficient to be able to focus on the unique and individual circumstances of our client. The business of estate planning is getting to those adult conversations faster. It also allows us to spend more time with those adult conversations too. I think part of that dynamic is already here. Now looking towards the future, it’s really, really interesting. I don’t play around with AI a ton, I’ll have to admit that. But what they think AI can do could be pretty awesome to leverage, right? Earlier this week, I got an introduction from a financial advisor to a client. The financial advisor used an AI-based estate planning review software program to review the estate plan. And ultimately, the financial advisor and the client had different feelings about the quality of the estate plan. The client thought it was great. The financial advisor was like, hey, this isn’t all that great. And the financial advisor sent me the estate plan and their AI-driven review. Brandon Rains (25:39.63)And with the in those, this is actually the first time that ever had ever done this. What I found with the AI was both a positive and a negative. So in one particular aspect is what really stood out to me. I won’t bore your listening audience with the details. However, just with one aspect of it as an example, I felt like when I was reviewing it. I felt like it maybe overstated the strength of some of that planning that was in the document. It might have missed the mark as well a little bit. Because it used a very specific phrase with this issue, I was looking for it. And one of my complaints about this document was the organization was a little funky. Any attorney is gonna take some time to look through a document that they hadn’t noticed. But because it…I was looking in this one spot for this phrase that this planning structure implied. My first thought for several minutes was, AI got it wrong. I was like, there’s not this planning at all. It’s something else. Since I looked at it, I’d seen it on the AI, I said, let’s just keep on looking through. I hadn’t gone all the way through the document yet, but it wasn’t in that spot. Lo and behold, that phrase was like dozens of pages later. I was like, oh, okay, you weren’t wrong, AI, this is great. There were a couple of places where I felt like it had overstated some of the protections. Because the AI had noticed it and picked it up in one spot at a disconnected location, it actually helped me find it. I can go back to the client. This is the type of planning- rather than me saying, you know, you have this other different type of planning. Then they’re like, well, wait a second. So I thought our attorney said we had this and it turns out that they are right. I was wrong. And that would just make me look like an idiot. Right. So that’s kind of, think where AI is right now, right? People say, you know, trust, but verify or don’t trust, but verify. That’s what it kind of seems like to me is where AI is. how effective it’s going to be. I talking with another attorney just this week on the business of estate planning. He was like, AI is as dumb as it ever is going to be, is right now. I think that AI is going to impact the legal staff. It could potentially replace legal staff sooner that it will replace the attorney. Whether that’s AI-voiced phone calls or AI-driven emails. or AI might become an integral part of drafting where it can take your notes from the meeting and you organize it in a certain way and you train the AI on how to read your notes and it’ll draft your document, right? It could get you that rough draft where before it might take you 20, 30 minutes, two hours, three hours, depending on your internal systems and processes to get to that same point, right? So, should it ever get to the point of replacing legal advice? I might be biased. I don’t think it should. But I think it will certainly have the capability. It’s there to augment and make bigger what we bring to the table, I think is where AI is at its best place. If it’s used to replace us, then we’re running into issues because AI has shown that it hallucinates quite a bit. I guess that’s the official term for creating stuff out of thin air or lying. There are attorneys that have been sanctioned because of inappropriate reliance on AI and replacing legal research and legal drafting. It’s not there yet. I don’t know if it’ll ever get there, but augmenting it and saving time and streamlining processes. Frazer Rice (29:41.758)Right. Brandon Rains (29:59.384)To me is the thing that makes the most sense because then again, to use your phrase, gets us to those adult conversations faster. It gives us more time to spend on those adult conversations. Frazer Rice (30:12.696) on the Business of Estate PlanningGood stuff. Brandon, how do listeners find you? Brandon Rains (30:17.708) on the Business of Estate PlanningYeah, so the website is rains-law.com. Rains is R-A-I-N-S spelled just like the weather. Or they can reach out to me directly. So, Brannon, just normal spelling, B-R-A-N-D-O-N at rains-law.com. Great ways. Frazer Rice (30:32.818) on the Business of Estate PlanningWe will revisit the business of estate planning going forward. We can talk about lots of different issues for hours. Maybe we’ll put a pin in this for now and have episode two, three, four, etc. as we go forward. Thank you for being on. Brandon Rains (30:50.766) on the Business of Estate PlanningThank you for Frazer, appreciate it. THREE ESTATE PLANNING MISTAKES GENE HACKMAN’S ESTATE PLANNING https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

https://youtu.be/UizVi4fJzPs?si=MeLp0txegEzBkVLl CIVIC ENGAGEMENT: The Secret to Revitalizing Communities- this is how we improve our neighborhoods. It’s a great way to teach the next generation about citizenship and how to be a part of something bigger than themselves. But what is involved in getting involved? Politics has an ugly reputation. How does one participate, get meaningful results, and keep ones sanity? Friend of the show, BLAIR DUQUESNAY, takes us through her experience navigating levee governance and politics in her hometown of New Orleans after Hurricane Katrina. She explains why civic activity is important to her and the example she wants to set for others. It’s a great example of citizenship that we can all learn from. https://open.spotify.com/episode/3BjQeTf3nz5mgt6UD2pgpy?si=ntfqCSR1S2aCQvmVxSNQoA Summary In this conversation, Frazer Rice and Blair discuss the importance of community engagement and civic responsibility, particularly in the context of New Orleans post-Hurricane Katrina. Blair shares her journey into civic activism, the challenges faced in flood protection governance, and the grassroots efforts to raise awareness and advocate for reforms. They emphasize the significance of being informed and active citizens, the lessons learned from local democracy, and the need for ongoing engagement in community issues. Takeaways Civic engagement is crucial for community well-being. Personal experiences shape one’s commitment to volunteerism. Grassroots advocacy can influence local governance. Awareness of local issues is essential for effective activism. Democracy requires active participation from citizens. Building relationships with elected officials is important. Researching issues enhances advocacy effectiveness. Community coalitions can broaden outreach efforts. Caring about local issues is a fundamental aspect of citizenship. Voting is a critical component of civic responsibility. The Secret to Sound Bites “We’re all just humans in this process.”“It’s important to research the issues.”“You have to vote to have a voice.” Civic Engagement Chapters 00:00 Community Engagement and Civic Responsibility05:59 Political Challenges in Flood Management12:11 Lessons in Local Democracy? Titles Reinvigorating Our Communities Navigating Governance After Hurricane Katrina Other CIVIC ENGAGEMENT EPISODES https://frazerrice.com/civics/ WHAT IS CIVICS? https://frazerrice.com/all-the-presidents-money/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/ Keywords community engagement, civic responsibility, Hurricane Katrina, governance reforms, flood protection, grassroots advocacy, local democracy, civic engagement, informed citizen, activism, belle curve, blair duquesnay, ritholtz wealth, next capital, next vantage, frazer rice