Lisa Cukier, co-chair of the Private Client Group at Burns & Levinson, will be leading a free webinar, "Finance & Family for Private Equity Executives" for on March 3, 2022 at 12:00 noon ET. Cukier will be joined by guest speaker Lauren Cosulich from Summit Trail Advisors. Cukier shares a preview in this Q&A.
Q. What estate planning issues are unique to private equity executives?
Cukier: Private equity executives typically have asset portfolios comprised of numerous diverse funds and investment assets, some are illiquid, some are inchoate or fluctuating, and some are on vesting schedules. Some of the holdings may be in startups that require use of complex valuation methods and intricate assessment tools. Estate planning for private equity executives requires reliance on sophisticated valuation methods and an understanding of market norms around valuation and risk assessment. Trust planning can turn on or be keyed off of calculations of return on a venture capital portfolio. It’s important to work with a knowledgeable estate planning lawyer to identify private equity stages, challenges and calculations of return during the estate planning process.
The benefits of estate planning and tax planning for private equity executives are enormous. Hedge fund managers, venture capital partners and private equity partners are uniquely situated to reduce extraordinary gift tax, estate tax and generation skipping transfer tax liability. Planning around this can save your family significant money at each generation and through multiple generations in the future. Asset protection strategies are also needed to guard against a panoply of legal claims including divorce.
Q. Walk us through your approach when working with PE executives on their financial family planning. Where do you start?
Cukier: In the family planning arena, family succession planning and protection of assets from divorce is top of mind among private equity executives these days.
Family-owned enterprises and family offices are increasingly looking for and welcoming private equity investors. Our legal team works with family offices, enterprising families and private equity executives who are engaged in family succession planning and who are concomitantly scaling business plans or raising capital to create operational agility. This is driving our family succession planning these days.
Divorce, in particular, can decimate long held expectations of wealth accumulation and distribution. If handled delicately and with an in-depth understanding of the business realities that affect private equity executives, it can be a non-acrimonious process that includes legacy planning in favor of the next generation.
Prenuptial planning and strategic decanting of trust assets can provide the best chance for an impermeable barrier of protection. This is particularly important in connection with second and third (plus) marriages and the creation of a blended family structure.
Q. What conversations are most difficult to have with your PE clients?
Cukier: Family succession planning is nearly unfathomable to private equity executives who are at the peak of their careers and cannot conceive of turning over fiduciary control and investment management to the next generation. I am currently serving as a high-touch personal trustee and Chief-of-Staff to in an ultra-high wealth family. Although I was selected for the role and serve as their desired decision-maker, the conversations I am having with my client about his turning over decision-making authority and relinquishing his historical patriarchal role in favor of succession and exit is extraordinarily challenging. In my experience, many highly accomplished and intensely driven private equity executives find it exceedingly challenging to slow down and accede power – even to the very people they instill in the role – as they age and hit the runway towards retirement.
Q. With divorce rates at 40-50% nationally, no one is immune from having their marriage fall apart. Do PE and/or other executives face particular challenges and how to you deal with those?
Cukier: Prenuptial planning is a must for private equity executives who are contemplating marriage. Using a prenuptial agreement, we can segregate certain assets as non-marital and separate. As part of any prenuptial plan, there must be a full and fair disclosure of each party's assets. This is particularly sensitive and capable of inaccuracy among private equity executives since the asset disclosure is inherently unsettled and subject to vast fluctuations, especially at junctures when private equity investors are looking to exit investments via IPO's. A prenuptial agreement that does not make a full and fair disclosure might later be declared unenforceable in the context of divorce if the contesting spouse alleges that she or he signed it without a meaningful understanding of what he or she was giving up and waiving.
This has been further exacerbated in the pandemic, which has created an unstable infrastructure that can impact the reliability of the asset disclosure in a prenuptial agreement, and potentially subject the prenuptial agreement to a later attack by an aggrieved spouse. For example, commercial real estate values may have dramatically changed given how many companies have shifted to work from home initiatives. I retain expert valuators who are trained in the PE space to predict fluctuations in norms with precision.
Q. Can you protect your assets from future, unknown family crisis? Or do you have to do crisis planning in real time?
Cukier: It’s much better to seek out counsel before you, or your family, is in crisis. Planning may include estate planning to build or bolster asset protection provisions; corporate document reinstatement to protect against destabilization in moments of transition or to protect against attack in divorce; postnuptial planning to stabilize assets despite relationship destabilization; solutions to protect family members and family assets from dissipation or disintegration from mental health/substance abuse impacts; and migration of assets to private foundations sooner than planned to protect and preserve fiduciary control.
There is nothing more gratifying than pre-crisis strategic planning. That said, I am a crisis interventionist and our fiduciary services and family law team acts swiftly, working around the clock, to institute concrete legal solutions and strategic interventions to re-stabilize family and finance at times of crisis when needed.
Lisa Cukier is Co-Chair of the Private Client Group at the law firm of Burns & Levinson in Boston. She concentrates her practice on family law, family office advisory services, estate and trust matters, guardianship/conservatorship, and blended family planning, and has many years of experience helping clients through challenging family law situations. She frequently serves as a private adjudicator and mediator. She can be reached at firstname.lastname@example.org.