The Tax Buster

It is a virtuous circle. To make it work, you need to be confident in the skills you bring to the table to address the client’s issues. At the same time, you must realize there are other inputs into the history, process and solution that are not in your skill set. It takes time to address complex needs of sophisticated clients. Advisors need to put egos aside and accept that there is no monopoly on good ideas, and be willing to listen to different perspectives and concerns.
Again, you need to grasp the entire picture to provide the best client solution. Whether I am transferring a real estate empire to the next generation here in the U.S. or reflecting the significant concerns that go into creating a trust for a family from the Middle East or Asia, it takes time to plan and implement. Legal restrictions, historical facts and client goals all need to be addressed.

Prince: How is the legal business changing?
Renn: Outside of the U.S., tax planning, often including drafting documents, has been undertaken by banks, trust companies, brokerage firms, accountants and multifamily offices for decades. The regulatory divide that has separated lawyers from many other professionals in the U.S. is not as pronounced in many parts of the world. Increasingly in the U.S., both estate and tax planning is being done by individuals who are not in legal private practice. Banks, trust companies and multifamily offices design plans that are then drafted by law firms. For simpler client situations, this may in fact result in significant cost savings and provide high-quality documents.

I’m not interested in being a scrivener. Most of my clients are not looking for a quick solution or a single, one-off document. They are looking for a long-term relationship and a comprehensive review of their family’s tax needs. Withers Bergman tries to bring creativity to a client’s situation while ensuring that the transactions are quite clearly on the right side of the line. I need to balance the tension between aggressively seeking cutting-edge planning and confirming bright-line solutions. I will not allow a client to take a position that is not supported by the law. If a client has taken positions in the past that are not as solid as I would like, we strenuously advocate for a favorable outcome.

Prince: How much of your practice is asset-protection planning?
Renn: Withers is not an asset-protection shop. Occasionally, I am asked by a client to do a domestic or offshore asset protection trust, and if I am convinced the planning is legitimate, I will do it. That said, the vast majority of the trusts I write have significant creditor protection attributes. Clients expect trust planning to save taxes. They are pleasantly surprised when they discover that the inheritance they received from their parents or the gifts in trust they made for their children or grandchildren are protected when the trust beneficiary is a party to a divorce or a lawsuit. Most of what we do on the trusts and estates side of the practice achieves creditor protection, especially for those fortunate enough to receive gifts and/or inheritances.

Prince: What types of planning do you provide?
Renn: With interest rates at historic lows, I am using techniques that freeze the value of an estate, while transferring assets to a younger generation at little or no transfer tax cost. With the rise in state and federal income tax rates, there is renewed interest in ways to hold assets in vehicles that will not attract tax. Private placement life insurance and captive insurance companies are among the most popular pieces of planning here. Income tax planning with trusts is also growing in importance.

With the addition of the 3.8% Obamacare Net Investment Income Tax, attention needs to be focused on ways to make income active. This is very achievable, especially with real estate. I am still being approached by U.S. persons with significant offshore wealth who have not properly disclosed it to the U.S. government and want help navigating the various IRS options to becoming compliant. There are a number of choices, but not all of them are best given a client’s particular circumstances.

Structures to control family wealth or family businesses are always of interest. Clients always want comfort that wealth is managed well.

Prince: What is the key to a successful relationship with a private client lawyer?
Renn: I think the most important aspect is understanding the client’s needs and working with the [client’s] existing team of advisors. Time needs to be spent learning the client’s hopes and goals, as well as understanding his or her business, assets and existing legal structures. Insight fuels creativity, which often solves the problem. This has to be done with bright-line techniques that do not expose the client and his or her family to meaningful challenges by the IRS. Pick a lawyer you like who has experience with clients like you.

Prince: If you could only convey one thought to a wealthy client, what would it be?
Renn: A failure to plan is a default to higher taxes. Planning is not always cheap, but it almost is always significantly cheaper than not planning at all.