Diving Into Family Philanthropy (Segment I): What are the benefits of family philanthropy?

family giving1 – Teaching your financial values to the next generation.

Your financial values include your beliefs about how financial resources should be managed and utilized. We all have them, though we may not have taken the time to clearly articulate them to ourselves or our children. If you are reading this article, then charitable giving is likely already a part of your financial value system. Talking to your children and grandchildren about charitable choices is one way to increase the likelihood that charitable giving will also be a part of their financial value system. Consider sharing with your family the reasons you value charitable giving, how you make decisions about which charities to support, and the role philanthropy plays in achieving your financial goals.

2 – Sharing and discussing investment philosophies.

An investment philosophy is a set of guiding principles that informs and shapes your investment decision-making process. One way to share your personal investment philosophy is to set aside a pool of funds to be invested for the purpose of making charitable gifts. Consider engaging your family when you are considering the proper investment of those funds, and let members of your family make investment suggestions. This is one mechanism to share your tips for financial success without intruding into any personal financial affairs. It can help ease tensions that sometimes arise when the topic of money comes up around the dinner table and create a neutral field for lessons about investing to be passed along.

3 – Establishing a training ground for future family business board members.

Maybe you’ve identified members of the next generation who have an interest in participating in the family business, but you are concerned about whether they are ready to take on such a responsibility. Or perhaps your aren’t ready to begin business succession planning, but want to create a mechanism for members of the family to learn to work together, to engage in collective decision making and to demonstrate a commitment to a family venture. Some of our clients have used the governance of a family foundation to teach all of these lessons, in addition to those related directly to stewardship of charitable resources. However, the formality of a family foundation is not required to create this experience. A less formal family team that makes charitable gifts together around the holiday table could work just as well to start training future members of the board of your family business.

4 – Creating meaningful family experiences.

Sharing the benefit of your experience and knowledge around charitable giving as discussed above is certainly an important benefit of family philanthropy. Family philanthropy can also create powerful family memories. For example, some of our clients not only engage their families in decisions about where to make donations, but they follow up those donations with gifts of their time and talent. Each year at Thanksgiving, one family decides which charity it would like to support in the coming year. All generations contribute financially to the same organization and then plan a family trip to work side by side with that organization to carry out its charitable mission. Whether building houses in Costa Rica, serving food at the local soup kitchen, or clearing a hiking trail in the Shenandoah Valley, this family always has wonderful stories to share about time spent together.

If you are thinking about how your family can make a charitable impact in your community, or want to brainstorm ways to engage your family in your philanthropy, we are available to discuss these and other topics related to charitable giving.

Segment II of our series on family philanthropy will explore different giving vehicles. For some, family philanthropy automatically brings to mind the creation of a family foundation. While family foundations may be appropriate for some families, we will also explore other options, including donor advised funds and giving circles.

Diving into Family Philanthropy

Over the next several posts, we will be diving into the topic of family philanthropy. Since the topic is so broad, we have divided it into segments that we will cover in the coming weeks. Each segment is intended to give you food for thought as you consider the
choices available to families that wish to engage in philanthropy together. Here’s an overview:

Segment I: What are the benefits of family philanthropy?

Teaching financial values, sharing investment philosophies, raising charitable children, and creating meaningful family experiences are just some of the benefits to family philanthropy this piece will address.

Segment II: What giving vehicle is right for my family? 

For some, family philanthropy automatically brings to mind the creation of a family foundation.  While family foundations are appropriate for some families, we will also explore other options, including donor advised funds and giving circles.

Segment III: Making your family foundation’s corpus work as hard as its grants  

Grant making is an important part of the work of family foundations. However, some families are looking at ways to put their principal to work for social or environmental impact while sustaining long-term financial return. Not only is it possible to invest principal to further your charitable objectives, but families are also developing strategies to spend down their charitable assets faster than required by the IRS.

Segment IV: I’m ready to start thinking about family philanthropy, so where should I start?

In our last segment, we will provide you with some topics and questions for your family and advisors to start discussing as you begin planning or retooling your family’s philanthropic strategy.

If you are thinking about how your family can make an impact in your community, or if you want to brainstorm ways to take your family’s giving to new heights, we are available to discuss these and other topics related to charitable giving.

How an Advisory Board Can Help Your Family-Owned Business

Advisory boardWhat is an advisory board?

Family-owned businesses often form advisory boards as a source of guidance. Advisory boards differ from the board of directors discussed in this prior blog post in several respects. Primarily, advisory boards guide, not govern, as they do not have legal decision-making authority. When a company is closely held, the owners of the company may select the members of an advisory board. Where ownership spans multiple generations, advisory board members may be selected by the company’s board of directors.

Why would I want one for my business?

The purpose of an advisory board is to expand the business’s circle of trust in order to gain a broader spectrum of knowledge and experience to guide the business. Many business owners view the advisory board as an opportunity to harness expertise that the business might otherwise lack. Unlike owners who serve as both executives and board members of the company, advisory board members are not focused on the day-to-day operations of the business. This distance enables them to provide an objective, strategic, and future-focused perspective in advising the business.

Advisory boards also provide family-owned businesses with a chance to hear an outsider’s perspective—a potential change of pace from the opinions of family members, long-time friends, and employees. Advisory boards can also serve as a neutral group to resolve certain issues, such as transitioning between generations and arbitrating familial disputes. An advisory board can also function as a bridge from a family board to a board with independent members. We will discuss this in more detail in a future blog.

Who should serve on an advisory board?

Successful advisory boards typically contain between three to seven members, although board size and composition should be tailored to the needs of the business and the family owners. Business owners can select individuals that have a preexisting relationship with the business, such as accountants, financial advisors, or lawyers. Family businesses may also choose other experts in the business’s industry and market. Owners should keep in mind the importance of garnering new opinions and perspectives when selecting members of the advisory board.

How do I form an advisory board?

While no formal documentation is legally required to implement an advisory board, we suggest that businesses define their relationship with the advisory board in a written agreement or policy. Some businesses may choose to adopt bylaws of the advisory board or even a charter. Regardless of form, these written documents will serve to memorialize the purpose, parameters and function of the advisory board. Additionally, the board of directors must approve the creation of the advisory board in accordance with the business’s governance documents.

A Word of Advice: Address Estate Planning Sooner Rather than Later

Family Estate planning documentEarlier last month the New York Times ran an article about basic reasons why you need to pay attention to your family’s estate planning. The article made me think of several instances where families would have benefited from having a well-thought out plan. While we are still at the beginning of the year, we want to suggest that you consider making this one of your goals for 2017.

After practicing trusts and estates law for over three decades, I probably now spend at least one-third of my time dealing with legal matters where families have not properly tended to their estate planning. Often, this results in probate-related disputes and litigation, particularly in second marriage situations and in families where grown children do not get along with one another for whatever reason.

The net result of failing to tend to estate planning matters is frequently legal and family chaos, which carries with it unnecessary emotional turmoil and family distress, inordinate conflicts and delays, and significantly increased legal fees to navigate through the matter. It is often impossible to get to the back side of this emotional experience without deep scars, bitterness, and a shallower wallet.

So, for the sake of your family and loved ones, please consider steps you can take now to avoid leaving loose ends unattended in your estate planning matters. Any of the Bradley team who practice in this area would welcome the opportunity to talk further with you about these matters.

Defining the Role of a Board Chair

Business MeetingThe prior Family Business Advocates blog post provided an overview of the different legal roles that shareholders, directors, and officers play in the intersection of ownership and management of a company, but how does a family-owned business manage the intersection of all three of those legal roles? Answer: The Board Chair (a/k/a Chairman, Chairwoman, Chairperson).

  1. What is a Board Chair?

Simply put, it’s the leader of the Board of Directors. The Board Chair sets the agenda for, and presides over, meetings of the Board. The Board Chair also acts as a link between the Board and the executive officers of the company. The bylaws of the company often determine the scope of the Board Chair’s duties and obligations.

  1. Is the Board Chair an officer, director, or shareholder?

A director, but maybe all three. As a director, the Board Chair has fiduciary duties to the shareholders of the company, but that does not mean the Board Chair cannot also be a shareholder (and often times in a family-owned business the Board Chair is a shareholder).  The bylaws may provide that the Board Chair is also an executive officer of the company; however, many argue that best corporate governance practices favor appointing a non-executive officer Board Chair in order to reduce potential conflicts of interest (among other reasons). It is also important to note that the role of the Board Chair may change over time. A company may start out with a dual CEO/Board Chair role but later bifurcate the role as the family business matures or for succession planning purposes.

  1. Who appoints the Board Chair?

The company’s bylaws govern the appointment or election of a Board Chair. Typically, the Board Chair is elected by the other directors, but a family-owned business may develop its own unique process for selecting the Board Chair. For example, the position may rotate among different branches of the family tree, allowing a subset of the directors to select the Board Chair for a specified period of time.

  1. Why does a family-owned business need a Board Chair?

Every business with a Board of Directors needs a leader of the Board, but the role of the Board Chair is particularly important in a family-owned business. In a family-owned business, the Board Chair often acts as the voice of the family in interactions with the CEO.

  1. What qualities should a family-owned business look for in a Board Chair?

In addition to knowing the company’s business objectives, the Board Chair for a family-owned business needs to understand the family and its goals, challenges, and maybe most importantly, politics. There is no one-size-fits-all approach to selecting an appropriate Board Chair, but here are a few qualities to consider:

  • Familiarity with the company’s goals and strategies
  • Sound judgement
  • Experience and leadership maturity
  • Interpersonal skills
  • Organizational skills
  • Accountability
  • Reputation in the community
  • Relationships with others
  • Forward-looking vision
  • Time and desire to take on the role

We want to hear what you think. What additional qualities would you add to this list?

The Different Roles of Shareholders, Directors and Officers in Family-Owned Businesses

Business man giving a presentationMany family-owned businesses are organized as corporations to protect the owners from personal liability for business obligations. One consequence of organizing as a corporation is the legal separation of ownership and management. In order to secure protection from personal liability and to assure effective corporate governance, it is important for family-owned businesses to manage the inherent overlap that exists in their ownership and management. This blog post provides an overview of the different legal roles played by shareholders, directors and officers.


Stockholders are individuals or entities that hold an ownership interest in a corporation. The ownership interest is represented by shares of stock. An ownership interest does not, however, give a stockholder the right to control the day-to-day affairs of the corporation. Typically, the most important right that a stockholder has is the right to vote. Voting rights provide stockholders with limited control over the corporation’s affairs by allowing them to, for example, elect the individuals that will serve on the corporation’s board of directors and approve the corporation’s bylaws. Stockholders exercise their right to vote at annual meetings or special meetings that are called by the corporation. Stockholder’s voting rights are subject to the terms and conditions set forth in the corporation’s organizational documents (i.e., articles of incorporation and bylaws) and other agreements between some or all of the stockholders.


The board of directors of the corporation is made up of members who are elected or appointed by the stockholders. Membership on the board is not usually limited to stockholders or employees of the corporation. Directors govern the corporation on behalf of the stockholders and owe fiduciary duties to the stockholders and the corporation. The board of directors’ duties usually include hiring and dismissing the corporation’s officers, establishing and assessing the overall direction and strategy of the corporation, and approving annual budgets and corporate policies.


Officers are appointed and removed by the board of directors.  Officers manage the day-to-day affairs of the corporation and carry out the policies adopted by the board of directors. The structure of management varies widely between corporations.  In many instances a single individual may serve in multiple offices. For example, many boards of directors choose to have the top manager serve as both the president and CEO of the corporation.

With this background, it is important for family business owners to review the roles that various individuals are playing within the corporation.  Over time, as a business grows and develops, changes may begin to occur organically, and corporations must consider what corresponding legal formalities need to be observed to keep pace.

A Reprieve from Proposed Regulations Related to Valuation of Family Businesses?

Gift house with bowIn December, we posted a blog discussing a much anticipated hearing held on the Treasury Department’s issuance of proposed regulations under Section 2704 of the Internal Revenue Code (sometimes referred to as the 2704 proposed regulations) that could significantly impact the valuation of interests in family-owned businesses for estate and gift tax purposes. Comments made by Treasury Department representatives at the December 1 hearing allayed some early concerns regarding the scope and impact of the 2704 proposed regulations. However, many questions regarding the future of the proposed regulations still remained after the hearing adjourned. 

Additional news regarding the future of the 2704 proposed regulations came in the first few days of the 115th U.S. Congress. New bills were introduced in the House and the Senate to prevent the Treasury Department and Internal Revenue Service from finalizing the 2704 proposed regulations. The House bill (H.R. 308) was introduced by Rep. Warren Davidson (R-Ohio) and referred to the House Committee on Ways and Means. It essentially prohibits funds from being used to finalize, implement, administer or enforce the 2704 proposed regulations. The related Senate bill (S. 47) was introduced by Sen. Marco Rubio (R-Fla.) and referred to the Senate Finance Committee.

We will continue to post updates regarding H.R. 308 and S. 47 as they progress through committee, and any activity by the new Congress and administration regarding estate and gift tax issues of importance to family business owners. Please let us know if you would like to discuss these developments and their impact on transfers of ownership interests in your family business.

Rollover Equity in the Sale of a Family-Owned Business

Portrait of Father and Son EntrepreneurIf you sell your family-owned business to a private equity buyer, the buyer will most likely pay a portion of the purchase price with equity in the buyer’s new company, rather than with cash. The equity that you receive in the buyer’s new company in exchange for a portion of the equity in your existing business is commonly referred to as “rollover equity.”

Rollover equity stakes typically range from 10 to 20 percent of the buyer’s new company. Rollover equity is beneficial to the buyer because it reduces the cash portion of the purchase price and aligns the seller’s interest with the success of the new company.

While the rollover equity component reduces the amount of cash that the seller receives at closing, rollover equity can also benefit the seller. If the equity rollover is structured properly, the seller will not pay tax on the value of the rollover equity until there is a future sale or liquidity event with the buyer’s new company. Rollover equity also gives the seller a potential “second bite at the apple.” If the buyer grows the acquired business (either organically or through additional acquisitions), the seller will participate in the future growth of the business and will profit from a future sale or IPO of the new company.

In our experience, private equity buyers may also allow family-business owners to hold their rollover equity in a trust or a family limited liability company or partnership, which creates opportunities for future gifts and estate planning.

It is important to carefully consider the rights and restrictions that will be attached to your minority equity position in the new company. For example, your rollover equity may be in the form of common equity in the new company, while the private equity buyer owns preferred equity with financial and governance rights superior to yours. There also will be restrictions on your ability to transfer your equity in the new company. In addition, the buyer will likely have “drag-along” rights that will enable the buyer to require a sale of your rollover equity in a future sale or liquidity event approved by the buyer (even if you don’t like the deal).

While there are a number of tax, corporate and estate planning issues to consider and negotiate, including a rollover equity component in the sale of your family-owned business can be mutually beneficial to the buyer and the seller.

Special Needs Trusts Through the Lens of a Financial Planner

Special Needs Trusts Through the Lens of a Financial PlannerI met recently with my friend and advisor, Lauren Pearson, CFP®, to learn more about Special Needs Trusts. Lauren is a managing director and partner at HighTower Twickenham, an industry leading wealth management firm. Lauren has a great deal of experience advising families in this area and has experience in her own family.

D.: Lauren, what is your advice?

Lauren: If you have a relative or a loved one with special needs, you naturally want to provide for them in some way. In most cases, this generosity is demonstrated by providing for them in your will. Although well intended, your outright gift could compromise Social Security Disability Income (SSDI) and Medicaid benefits for the special needs person. Reinstating these benefits normally falls upon the caregiver which is more than arduous. If you are thinking of providing for a special needs loved one in your will, you might consider the following:

1) Always talk to the primary caregiver of the special needs person about your intentions. Note that the primary caregiver may be unaware of the need for a Special Needs Trust. If this is the case, please reach out to your estate planning attorney, preferably an attorney with experience drafting Special Needs Trusts, for advice and counsel. See list of interview questions for trusted advisors below.

2) If you are the primary caregiver for a special needs person, you should review all your estate planning documents and beneficiary information. My family thought all beneficiary information was up-to-date until we met with our attorney. A piece of property was to be split per stirpes with my brothers, one who has Down syndrome. This arrangement would have jeopardized my brother’s SSDI and Medicaid benefits. Make sure to review your documents regularly with your attorney.

3) For primary caregivers, think about what you want your loved one’s life to look like after you are gone. I encourage the families with whom I work to designate one person as the trustee and one person as the primary caregiver, if possible. Check with these people every two to three years to make sure they are still willing and able to serve in this capacity.

4) Make sure your trusted advisors are coordinated. It is important for your financial planner, estate planning attorney, and CPA to understand your intentions to create or contribute to a Special Needs Trust. If you are utilizing life insurance, include your agent in the conversation.

D.: So, might a Special Needs Trust be an appropriate way for a parent or other family member to provide financial support for a Special Needs family member?

Lauren: Yes.  A Special Needs Trust can enable a person with a disability (mental, physical, or certain chronic illnesses) to have held for their benefit an unlimited amount of assets without affecting Social Security Disability Income (SSDI) and Medicaid benefits. In a properly drafted Special Needs Trust, the assets held in trust are not considered countable assets for purposes of qualification for certain governmental benefits. The purpose of this trust, which is why the assets are not countable, is to provide for the special needs person beyond resources provided by the government.

D: When is a Special Needs Trust unsuitable?

Lauren: I have run into the case where someone has a small insurance payout and they know they can’t leave it outright to their special needs loved one, but it would cost almost as much to set up a Special Needs Trust. If you do not have a loved one capable of serving as trustee and there are not substantial assets to place in trust, consider a pooled trust like The Alabama Family Trust.

D.: What advice do you give your clients to select the right team to handle a Special Needs Trust?

Lauren: Ask the right questions. The internet is your friend because most professionals have bios listed on their company websites. Look for information in the bios that shows the professional is a subject matter expert or has a true interest in serving families with special needs.

Once you narrow down your providers to specialists, you need to find the right fit for your family. Here is a list of interview questions for families with a loved one with special needs:

1) How did you start working with special needs families?

2) How many special needs families have you served?

3) How long have you been working with special needs families?

4) For financial advisors/planners: Will you serve in a fiduciary capacity 100 percent of the time for my family? Very important.

5) Ask for references. Some industries do not allow references for confidentiality reasons but it is good to ask.

6) Ask the advisor to give you a case study where they have worked with a family like yours.

Update On Proposed Tax Regulations Affecting Availability of Valuation Discounts to Family Business Owners

Update On Proposed Tax Regulations Affecting Availability of Valuation Discounts to Family Business OwnersIn September, we posted a blog discussing the Treasury Department’s issuance of proposed regulations under Section 2704 of the Internal Revenue Code (sometimes referred to as the 2704 proposed regulations) that could significantly impact the valuation of interests in family-owned businesses for estate and gift tax purposes. When first issued, there was significant discussion among business and estate planning advisors, valuation firms and business owners regarding the extent to which valuation discounts (primarily, lack of control and lack of marketability discounts) would be reduced (or even eliminated) when valuing gifts or other transfers of family-owned businesses. In the following months, a consensus emerged that the 2704 proposed regulations would not entirely eliminate valuation discounts, but many questions remained regarding their impact on valuations of family-owned businesses.

On December 1, 2016, the IRS held a much-anticipated hearing on the 2704 proposed regulations. At the hearing, numerous valuation experts, business advisors and taxpayer advocacy groups commented on potential problems and other valuation issues that would result if the 2704 proposed regulations were finalized in its current form. Also at the hearing, the Treasury Department representative confirmed they did not intend to include a “deemed put right” in the 2704 proposed regulations that would eliminate the use of all discounts when valuing transfers of business interests, and that the Treasury Department planned to clarify this when the regulations were finalized. Therefore, while it is likely that the proposed 2704 regulations (if finalized) will still impact how family business interests are valued for gift and estate tax purposes, the impact on such valuations should not be as significant as originally feared.

It is difficult to predict what changes will be included in the final regulations, or when the 2704 proposed regulations will be finalized. The IRS must consider the comments made at the hearing and a very large number of written comments that it has received in response to the regulations. Most advisors believe the earliest the regulations could be finalized is late in the first quarter of 2017. Further, the timing of when the 2704 proposed regulations will be finalized (or whether they are finalized at all) may be impacted by the transition from the Obama administration to the new Trump administration in January 2017, including the possibility of the repeal of the estate tax under a Trump administration.

We will continue to post updates regarding the progress of the 2704 proposed regulations and any activity by the new administration regarding estate and gift tax issues of importance to family business owners. Please let us know if you would like to discuss these developments and their impact on transfers of ownership interests in your family business.