Wealth Actually

Welcome back to the 99th episode of the “Wealth Actually” Podcast . . . (We’re recording right before Christmas and I’d like give a special thanks to Matthew Passy who helps me sound good and make the trains run on time.) With the end of the year fast approaching, philanthropy is on the minds of many people. For charitable organizations, the mad rush to meet their goals underscores many challenges they face.  Understaffed, under-resourced, and using old tools, non-profits face an uphill climb every year. By using marketing technology, Artificial Intelligence and data science tools, a new company is trying to help with this problem.  ARJUNA SOLUTIONS applies the same marketing concepts and data science found at the top consumer companies in the world to the non-profit space. To take us through the idea of how technology and the non-profit space can intersect, I’m going to speak to COLIN STEWART. Colin leads Arjuna’s groundbreaking philanthropic practice, which enables nonprofits to adopt new technologies and increase revenue more easily via philanthropic funding.  We focus on how non-profit organizations can increase their revenue through more data-driven and targeted asks. Finally, we talk about how HNW donors and charities can deepen their relationships and multiply the impact of major gifts in measurable ways through technology. OUTLINE: Technology and the Importance of Philanthropy ARJUNA SOLUTIONS background- What does Arjuna solve?  How do you optimize the right amount to ask for so that you get the most out of a donor (without scaring them off)? Arjuna’s ExactAsk process- Where does the Artificial Intelligence fit in?  What data are you using? How do you manage the data to get the right ask amount? Where does it integrate with the recipient organizations systems? For which organizations is this right? (Large Donor Bases where there is plenty of data to analyze and marketing systems to optimize). How can the AI process help the donor amplify a large gift to an organization?-  When multiplying the impact, Is this really a case of a $1 gift generating $3? What does the gift process look look like? Besides potentially more donations, how does it it help the charitable organization? How do you measure success? How does the client measure success? What’s next? How do we stay in touch? COLIN STEWART https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Life insurance is one of the core tools in wealth management. It replaces income for families, funds the payment of estate taxes, and, given its tax advantages, can serve as an investment vehicle. However, the culture of life insurance, its sales process and its regulatory framework live apart from the world of stocks and bonds. To that end, there is a new framework in New York that is changing the way life insurance is presented to clients: Rule 187. This rule and the law that surrounds it is in contrast to the way in which life insurance has been traditionally presented. It imposes a new “best interest” standard and recognizes the importance of an accurate demonstration of the COSTS of insurance to clients. And for the wealth advisers and fiduciaries out there, Rule 187’s reach goes far beyond the borders of New York. Enter STEVEN ZEIGER https://frazerrice.com/wp-content/uploads/2022/06/TRIMMED-Rice-Zeiger-4-29-22-r-187-video-1920×1080-1.mp4 Steven serves as a Managing Director of Wealth Management at KB FINANCIAL and is a recognized expert in applying prudent investor guidelines to life insurance product selection. He works with large clients and advises individual and corporate trustees on their responsibilities around life insurance. Steve will help us understand the practical application of Rule 187 and some of the potential future impacts on the business of life insurance nationwide. After this podcast, you should have a new appreciation for the way life insurance should be bought . . . and sold. (As a reminder, this podcast is for education purposes and not investment advice. Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. KB Financial is independently owned and operated.) Outline: Fiduciary Responsibilities Around Life Insurance in NY- Steven’s Background- How is life insurance used?  Income Replacement, Estate Tax Funding, Business Succession, Investment Vehicle How do most people think the word “fiduciary” works with life insurance? How is it regulated nationwide? By state with guidance from NAIC Why is NY different?  RULE 187 and the New “Best interest” standard What court cases should high end advisors keep in mind? Which advisers are affected? Trustees? NY Why are the costs important? And to whom? What is the important information in an insurance projection? What information is usually missing and why is that important for NY compliance purposes? The problem of co-mingling cost and performance metrics From a 30K ft. level, how does that impact the allocation of premium dollars for clients?*Either save premium on current DB, or by more DB/current premium- At what levels should this cost-based interaction be engaged? What does look like for the NY advisers? The advisor community in general? RIA’s? The Life Insurance Industry? How do we stay in touch?(Contact info etc . . . ) STEVEN ZEIGER Useful articles around Life Insurance and RULE 187 Trust & Estates -A Shot Across the Bow – Veralytic Inc.  – (Using independent research) DownloadDocumentFile.ashx (uniformlaws.org) – (Investigating Insurance Costs) FINRA: 2210. Communications with the Public | FINRA.org – (Don’t compare illustrations side by side, disclose costs) NYSDFS Regulations – Insurance: Final Adoption of First Amendment to Insurance Regulation RULE 187 (11 NYCRR 224): Suitability and Best Interests in Life Insurance and Annuity Transactions (Care skill prudence diligence cost performance risk) CFP: standards-of-professional-conduct.pdf (cfp.net) (care skill prudence diligence cost performance risk) (Disclosure: Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. KB Financial is independently owned and operated.) https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

This latest podcast is special because it harkens back to 2000 when I wrote a paper in law school about the use of securitizations to disrupt the music industry.   I mused about the disruption of the music industry and the demise of the traditional way of doing business.  I wasn’t far off! The music industry has undergone enormous changes with the advent of streaming. The demand for content has never been higher with new ways to monetize content. Add to that the fascination of NFT’s and the new attention into the divisibility of artists rights.  Finally, with rock-bottom interest rates and an insatiable hunger for non-correlated returns, music rights have become a popular asset class for investors. To help think about this, I went to the source, DAVID PULLMAN. David is a pioneer in music industry finance. His firm THE PULLMAN GROUP covers many aspects of the music industry including publishing and mechanical rights, royalty management, loans, advances and securitizations. We get into: Pullman’s background in finance and investment banking What went into the Bowie transaction and why it was contemplated in the first place The challenges of working with complication What the later transactions with artists like James Brown and Holland Dozier Holland were like How streaming services like Napster and then iTunes, Pandora and Spotify changed the dynamics How the Bowie Bond has come out the other side and is relevant to new players in the industry. (For some context into the Bowie Bond and the concept of Intellectual Property Securitization, here is Quick Synopsis from INVESTOPEDIA and a Summary from WIKIPEDIA) We also talk a lot about what it was like to work with someone like David Bowie. Bowie himself was not only the driver of musical trends, he was a savvy businessman, futurist and technologist as well. His vision for the scope and power of the internet and its impact on the accessibility of music and the music business itself was extraordinary. Listen here: https://www.youtube.com/watch?v=JPpiYG9_058&t=1s Finally, and some of the issues with future music financings and his thoughts on the impact of NFT’s. Without further ado . . . DAVID PULLMAN. As an extra bonus . . . . Here is a 5 minute outtake of the podcast with David Pullman- in this morsel, we talk about his experience with David Bowie and how the song “Fame” represented a major pivot in Bowie’s career AND Pullman’s! https://frazerrice.com/blog/preview-david-pullman/ The bonus 5 minute outtake on working with Bowie and the gift of “Fame” Finally, here is a list of the 2022 GRAMMY NOMINEES: https://nypost.com/2021/11/23/grammy-nominations-2022-full-list-of-nominees-new-categories/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

The College Admission season is in full swing and it brings it usual stresses. However in the world of intergenerational planning, it’s a unique opportunity for families to discuss their core values and the development of their kid’s personal narratives.  It is chance for families to collaborate on a life changing decision around the kids future- a process in which the engaged kids have a vested interest! Finally, it’s often the first instance where kids experience the judgment of their personal narratives by the outside world. To help us dive deeper into this concept, I’m going to speak with LINDSAY TANNE Lindsay is the Founder and CEO of LOGICPREP. As a leading College Admissions Advisor, Lindsay helps students around the world develop and tell their stories and identify their best-fit schools. Over the past decade, she and her team have helped thousands of families successfully navigate the college application and higher education landscape. There’s been so much news coverage around college admissions and how last cycle was the most competitive one ever. Is it really as crazy out there as it seems?  Yes and no… More applications for the same number of spots – which means lower acceptance rates are a reality Imagine you were applying to Columbia 2 years ago – you were one of 40,000. Well, last admissions cycle, you’re up against 60,000 other students.  At MIT, for example, applications were up 66% Simply put, at highly selective schools in particular, the pond expanded It’s not that you’re a smaller fish It’s just that the pond got bigger But there’s one thing in particular I want to point: only 2.4% more students applied BUT applications were up 11% Basically, this means that the increase came from students applying to more schools rather than more students applying overall  Less data available  Transcripts were less reliable in this last admissions cycle as education moved online Additionally, during the pandemic, almost every school had to go test optional – meaning they wouldn’t require the SAT/ACT – as a temporary accommodation since the tests kept getting cancelled  As a result, students did not feel constrained by test score ranges and more students were open to the possibility of applying to highly selective schools than ever before In a sense, it’s like the lock on the front gate appeared to be loosened at the most competitive universities – since test scores no longer stood as a barrier to entry -more students felt emboldened to apply Ultimately, not as full of surprises as people might think (90% acceptance rate for LP to 1 of top 3 schools) Why?  The criteria for evaluation hasn’t fundamentally changed, but the weight assigned to each category has  More subjective, less quantifiable Test scores were optional Transcripts were less reliable – online school, pass/fail  Plus, with limitations on extracurriculars, there were even fewer avenues to demonstrate leadership and passion What actually counts in the college application process? How do you help your child stand out?  Basically, the college admissions process is founded upon three pillars:  Academic Record – transcript and its rigor, what classes you take and your grades  Standardized Test Scores – SAT/ACT  Personal Narrative – your activities, how you spend your summers, teacher recommendations, what it is what makes you who you are 2020, of course, was an unusual year – but things are changing slightly…. These pillars still stand (though some might be shakier than others)  However, the weight or emphasis, of each of these pillars has been challenged  So what is the impact on the test-optional trend on college admissions?  First, let’s define: what is test optional?  SAT/ACT not required; considered if submitted What is test blind?  SAT/ACT not evaluated at all; very few schools fit into this category, though it does include the UC system The 2021 admissions cycle has really been an extension of 2020 – more schools offering test optional admissions a temporary adjustment to their policies We have to acknowledge that the past cycle and coming one are functioning as an experiment – what does it mean to not require test scores?  We don’t know yet, but I do think the option will remain at many schools, especially those who had been contemplating this shift prior to the onset of COVID Despite these changes, I want to talk about why scores still matter At the end of the day, they’re one more component for admissions officers to evaluate – and a concrete one Scores contextualize grades – transcripts are variable, not all schools are known to AOs Especially important for international students where the schools/grading systems are less universally understood  Also important for students from selective high schools where the local competition is especially intense Anecdotally, our most successful students applying to the most selective schools did have strong testing Most importantly: narrative is more important than ever now Deemphasizing testing means that other subjective factors such as your essay, teacher recommendations, and leadership matter more.  First, students are applying to more schools – since it seems the gates have been loosened – so demonstrating interest matters  Really about creating a thoughtful and intentional list and defining the “why” in a way that hasn’t mattered as much in the past At the end of the day, with more applicants, colleges are even more invested in managing their yield – they want to know who is going to say yes to their offer This is where the idea of impact comes in – how have you demonstrated depth of commitment and made a difference? So much of the selective process is tied to the idea of narrative now We encourage our students to deeply pursue their interests in creative ways, take classes online – the whole world has become more accessible – and brainstorm projects that reflect their passions and strengths What is the value of a college education? How do I know what the right fit is for my child – from a financial perspective, a career one, etc.? Genuinely believe that where a student feels engaged and happy – they will thrive  It’s about the people you meet, the relationships you develop as much as what happens in the classroom – so, what environments will be most conducive to that?  Think about whether grad school is part of the plan (what is the matriculation? grades matter more)  When it comes to the job search, what firms recruit?  It’s all about fit! Well, then, how does my child educate him/herself about fit?  Virtual tours Visit college campuses – sit in on a class, read the school newspaper Reach out to your network – talk to current students and recent alums Partner with a team who can help students not only evaluate the schools themselves but get to know themselves more deeply  Should be able to answer the questions of what motivates them, what kind of environments they thrive in, what they hope to gain out of their education so that they can develop an appropriate list If a student thinks they want to go into business, is an undergraduate business degree the only path? The best one?  No! Many of the most selective colleges – say Harvard or Brown or Pomona – don’t even offer undergraduate business  The idea at a liberal arts curriculum – which these schools offer – is the following:  Hands on  Flexible  Teaches you to ask questions and differentiate opinion from fact  How to connect with different kinds of people – diversity of thinking  – learn how to make decisions based on different points of view Better problem solving These are all things employers value  Skills can be learned on the job, but not how to think So if an MBA is likely to be part of the ultimate plan, worth taking a real pause before diving into an undergraduate business program  For example:  Reed Hastings CEO of Netflix Bowdoin College, Math Major Susan Wojcicki CEO of YouTube Harvard, History & Literature  Howard Schultz CEO of Starbucks Communications, Northern Michigan University Bob Igyer CEO of The Walt Disney Company  Communications, Ithaca College The college process is so fraught with anxiety and stress – what can families do to mitigate that?  Start early Remember your education is happening now  Rely on experts  Beyond guiding the process, i alleviates the burden on parents to push teh student along – and therefore removes some of the stress from the family Plus, teenagers are much more likely to listen to people who aren’t their parents (even if we’re all saying the same thing!) Beyond that, rather than succumbing to the stress, Is there a way to turn the application process into a way to actually instill values?  Social impact projects – give examples of students utilizing their families’ resources to make a difference Tell all students who are interested in studying business to get a job (and it doesn’t have to be a fancy internship either)  Ideally, the college process should be an exploratory one – and a right of passage Helping students identify all of their accomplishments & goals should build confidence and help them establish his identify/wants/dreams/etc It’s also an opportunity for them to really make decisions and own them – including the consequences – when it comes to weighing risk around strategy (early decision, etc.)  What does personal branding look like in the college application process?  For me, it’s about narrative building  Not just about finding a “brand” but about following your curiosity and connecting the dots  We encourage our students to think about what sparks their genuine interest – and then to seek opportunities that cultivate it (in the form of internships, after school activities, personal projects, etc.)  Online image matters too – have helped students create websites to demonstrate their impact, encourage them to think now about what happens when people Google their names Also a potential danger zone – know that admissions officers can and will check social media so operate accordingly! Not going to be an immediate “go to” (they’re reading through so so much paper) but if there’s a reason to check they will HOW DO WE STAY IN TOUCH WITH YOU? LINDSAY TANNE https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Here is sneak peak of my podcast with David Pullman- in this outtake, we talk about his experience with David Bowie and how the song “Fame” represented a major pivot in Bowie’s career AND Pullman’s! A fascinating tidbit into Bowie’s prescience- A must listen for the NFT crowd. The full interview will drop shortly . . . DAVID PULLMAN https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

You can’t go two minutes without hearing about the allure of venture capital and private equity or the cult of entrepreneurship and the start-up. However, these things are hard!  Venture and P/E require large pools of patient capital, deep expertise and long time horizons. Entrepreneurship requires a unique angle, force of will, operational deftness and a 24/7 personal commitment to success. This has led to the development of SEARCH FUNDS – pools of capital designed to invest in small and medium sized businesses (SMB’s) businesses that have gotten off the ground but aren’t exercises in organizational change.  STANFORD has done extensive work investigating their attractiveness. These small and medium-sized businesses stretch across many industries and usually have annual revenues of between $200,000 and $20 million. These businesses are past the start-up stage and usually profitable but could use help in professionalizing certain operating aspects. This has attracted the attention of investors looking for outsized returns and many entrepreneurs looking to run a business without the “startup experience.” Enter STEVE RESSLER– Steve is a serial entrepreneur with 3X exits in GovTech and Software as a Service (including his sale of his first business to Vista Partners). His work has taken him deep into the SEARCH FUND and SMB operator space. He has lots to tell us about both ends of the “search fund” experience, the SMB phenomenon and where it is going. We also cover some great work he’s doing with Veterans in the operator space. Background Experience as a founder Having an early exit Software and Government Services- What are the competitive advantages/niches you’re looking for here? The appeal of SMB space? Running a Fund vs being an Operator? Expected returns? What is the timeline / exit strategy for your investments? How do the family dynamics differ in search investing from starting the business? When buying the businesses how do you deal with the personal dynamics? Do you get involved in the family dynamics? How do you analyze that? What’s next? Involvement with Veterans programs: SEARCHACQUIRE How do we keep in touch? STEVE RESSLER TWITTER STEVE RESSLER NEWSLETTER STEVE RESSLER WEBSITE

Quan is the author of his memoir “SPARROW AND THE RAZOR WIRE” His is an amazing story of redemption, the importance of second chances and the power of entrepreneurship. https://www.amazon.com/Sparrow-Razor-Wire-Finding-Sentence-ebook/dp/B08F34LBXL Quan spent twenty-two years in and out of correctional institutions, including a life sentence for murder. He was paroled 2015 and created his first company six months later. The following year, he received the Peace Fellowship Award for his work with the Alternatives to Violence Project. He is the post-release program manager for Defy Ventures, a nonprofit helping those with a criminal past transform their lives through the journey of entrepreneurship. (I first met Quan when participating in an entrepreneurship program with DEFY VENTURES at Kern Valley State Prison). We’ll be talking about: Quan’s Story His Vietnamese background and his early path to gangs and run-ins with the law The Role of Taking Responsibility The Horrors of Prison Getting Out and the Transition to “Civilian Life” Rebuilding everything His company and his work with Defy Ventures . . . Writing his book The problems with the criminal justice system The path to a better life through entrepreneurism And what’s next for Quan . . . . (A movie deal I hope!) Meeting Quan changed my worldview (More about my visit to KERN VALLEY STATE PRISON here). I hope you learn something from Quan’s experience and reconsider the role of the criminal justice system in our society. More About Quan Quan on PBS NewsHour https://www.youtube.com/watch?v=CNuSFwR5wzw His uplifting story on Google Talks: https://www.youtube.com/watch?v=WkhlbGrYTAo How Do We Stay In Touch? Website: www.quanxhuynh.com Twitter: @quanxhuynh Facbook: QUANXHUYNH Linkedin: QUANXHUYNH IG: @quanxhuynh https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

New York City residents have the highest State and City tax burden in the country (it’s over 15% at the top level, recently overtaking California). It’s no surprise that New Yorkers are constantly strategizing around their tax burden and potential moves to other states- especially for high earners or those looking to sell a business. But a lot of New Yorkers suffer from ‘advice by cocktail party” and many misconceptions float around as people assume that being out of NY for more than 183 days is “enough”. Getting out of New York’s tax grip is a lot more complicated than that. So we’re going to one of the top experts in the field, MARK KLEIN of HODGSON RUSS. Mark is Partner and Chairman of the Firm and concentrates his practice in New York State and New York City tax matters. He has more than 35 years of experience with federal, multistate, state and local taxation –He may be best known for his public speaking on tax topics. Mark splits his time between the Firm’s New York City and Buffalo offices. For New Yorkers listening, you are going to learn a lot on how to arrange your affairs when for state tax purposes. We’re also going to talk a little bit about the “Convenience Rule” which is impacting a lot of New Yorkers who have “relocated” due to Covid. What do New Yorkers face?-Income and Capital Gains Tax that is the highest in the nation (Over 15%)-Estate Tax What are the typical options when reducing the tax bill? What do you have to show? When moving to a non-tax state, what does a client have to think about? What about the new normal with COVID? What if I’m not working in NYC anymore? Mark and his team at HODGSON neatly sums up the issues here: https://www.hodgsonruss.com/what-to-expect-in-a-new-york-residency-audit.html WHAT TO EXPECT IN A RESIDENCY AUDIT A New York State residency audit is one of the most difficult, intrusive, and document-intensive of all personal income tax audits. And the New York Tax Department has one of the most sophisticated and aggressive residency-audit programs in the country. This handbook follows a question-and-answer format that should tell you everything—ok, almost everything—you need to know about what happens in these audits. You’ll have to call us if you want to know everything! WHAT IS A RESIDENCY AUDIT? A residency audit is designed to determine whether you correctly filed as a nonresident or part-year resident of New York. Because New York residents are subject to tax on their worldwide income while nonresidents are subject to tax only on that portion of their income attributable to (“sourced to”) New York, the difference in tax liability can be significant, particularly if you have substantial investment income. If there is a possibility that you were also a New York City resident, the difference in potential tax can be even more significant since New York City residents also pay tax on their worldwide income while New York City nonresidents pay no tax to the City at all, even if they work there. The audit will generally cover three areas. First, the auditors will focus on the first residency test, called the “domicile” test. Second, the auditors will look to the alternative residency test, called “statutory residency.” And finally, even if you are able to establish nonresidency, the audit will also examine whether you properly “allocated” your sourced income to New York on your tax return. We usually don’t see the New York auditors examining other underlying components of a tax return—such as the income and deductions reported. But in more recent years, as auditors have become better trained (and more aggressive), there has been more of a shift in focus to the ENTIRE tax return, so you should be ready for such questions as well. HOW LIKELY IS IT THAT I WILL BE AUDITED? Very likely. If you are a high-income taxpayer claiming a move into or out of New York, it’s a near certainty you will be audited. The Tax Department is sophisticated and aggressive. Consider some of the numbers: The tax department has ten district offices located across the State (and in Chicago). There are more than 300 auditors who focus on these Over the past five years, the Tax Department has conducted over 15,000 of these These audits have generated over $1 billion in revenue over this time In short, there are a billion reasons why the New York Tax Department watches these issues carefully. If you claim a move from New York, expect to get audited. HOW IS RESIDENCY DETERMINED? There are TWO residency tests. The auditor will first attempt to establish whether you are domiciled in New York. That’s the first test. The second test is more black and white. Under the second test— called “statutory residency”—a taxpayer who is domiciled in another state can still be taxed as a resident if they maintain a permanent place of abode in New York and spend more than 183 days in New York during the year. If you meet either of these tests, you are a resident. So we have to be mindful of both issues. HOW IS DOMICILE DETERMINED? A domicile audit usually is concerned with change: Did the taxpayer move into or out of New York during the audit period? We are often looking to tie that change to a change in lifestyle or some life-changing event, like a marriage, retirement, new job, and so forth. And despite what many taxpayers and practitioners believe, the inquiry is not really focused on where the taxpayer is registered to vote, maintains a driver’s license, or registers his cars. It is a much more subjective inquiry, based on long-standing common-law principles that are often difficult to apply. The general standard from the case law is that “the test of intent with respect to a purported new domicile [depends on] whether the place of habitation is the permanent home of a person, with the range of sentiment, feeling and permanent association with it.” Critically, the party asserting a change of domicile has the burden to prove, by clear and convincing evidence, that the taxpayer abandoned his or her historic domicile and moved to the new location with the intent to remain there permanently. Don’t take the burden of proof concept lightly. “Clear and convincing” evidence is not defined, but we’re sure it means better than 51/49. If a taxpayer has the burden of proof in a domicile audit and the case is a close one, a tie will go the New York Tax Department. Of course, if the Department is asserting a change-of-domicile into New York, the burden goes the other way, and the Department must prove, by clear and convincing evidence, that the taxpayer intended to change his domicile to New York. Overall, though, the domicile inquiry has to do with a taxpayer’s feelings and intentions, which can be difficult to quantify. The nonresident audit guidelines that the Department has put together are of great value in assisting auditors (and practitioners) in working through the issues that come up during a residency audit. Under the guidelines, the auditor is instructed to analyze the taxpayer’s lifestyle, using five “primary” factors to determine where the taxpayer’s domicile—his or her one, true home—is actually located. An assessment of these “five factors,” and a series of less significant “other” factors as necessary, is used by the Tax Department as an objective means to a subjective end: on balance, the place where the factors most heavily favor is likely the taxpayer’s domicile. THE FIVE FACTORS HOME The home factor reviews the use and maintenance of the taxpayer’s New York residence as compared with the nature and use patterns of the non-New York residence. In other words, does the taxpayer behave as though the non-New York residence is her “home”? That is particularly crucial when a New York residence is acquired by a taxpayer whose domicile is in another state or when a residence in New York is retained after a move to another state. So questions about timing, and which residence was owned or occupied first, are often important. But other questions often arise. Is one residence owned but the other a rental? What is the value and sizeof each residence? What actions did the taxpayer take to remove herself from the old community? Has she established roots in the new community? Where does the family spend holidays and special occasions? Those are the questions practitioners have to ask — because we know the auditor will. ACTIVE BUSINESS INVOLVEMENT This factor considers the pattern of employment and the compensation derived from that employment. It will also examine the taxpayer’s active business involvement other than employment. Ongoing participation in decision-making and frequent communication with a business, even after official retirement, can be viewed as the most significant evidence of one’s domicile. For this factor, we would be looking to determine where the taxpayer actually worked on a day-to-day basis as well as the location of his primary office. If the taxpayer is a partner or shareholder in a New York business, the level of participation in the day-to-day management of the business can be looked at as well. Often, of course, the taxpayer is retired, so this is a nonfactor in some cases. Sometimes a taxpayer moves from New York City out to Westchester County, Long Island, or another City suburb. The taxpayer will continue to work in New York City after the move, only as a commuter, and not a resident. Auditors are instructed to be reasonable in this situation, and not inflate the value of this factor vis-à-vis a taxpayer’s otherwise strong non-New York City connections. TIME Time is often the most important factor in a domicile case. Generally, an individual is going to spend the majority of time at his “home.” So the residency audit is naturally focused on this question, and there are a few important aspects of this factor to mention. First, often we see taxpayers focus on the statutory residency test detailed below, and do everything they can to make sure they spend less than six months in New York. That’s great, and it’s obviously important, but a taxpayer who spends 182 days in New York might still have a residency problem under the domicile test. Second, with the “time” factor auditors are trying to determine where the taxpayer spends the majority of his or her time. If the taxpayer does not spend more time in her claimed “home” than in any other location, the auditor will have questions. So we will often focus our clients on the ratio of days spent in the new jurisdiction vs. days spent in New York. The bigger the ratio, often the better the case. A look at the raw number of days spent in any given place, however, is not always determinative either. Indeed, the domicile test is focused on a change in patterns, more than a simple quantification of days in and out of New York. Thus, for example, a taxpayer who goes from spending 300 days in New York to 150, and from 10 days in Florida to 145, certainly may be able to establish a change in domicile given the change in pattern. This factor sometimes takes on less importance for those who commute into New York. As stated by the New York Tax Appeals Tribunal in the Knight case, regular presence and significant time in New York City, without further proof of a New York domicile, is not at all inconsistent with a suburban commuter who comes into New York just for “work or play.” Along the same lines, while statutory residency is concerned with a day count test that focuses on whether the taxpayer spent any part of a day in New York (i.e., “a minute is a day” in New York), practitioners can advocate for a different application of the “time” factor analysis when the facts warrant it. For example, if the taxpayer spent 250 days in New York City, but didn’t spend a single night in New York City during a particular tax year, the 250 days in New York City will rightfully carry less significance. Finally, to state it bluntly, this factor can also be a real pain in the neck. Proof of day-to-day location in some form or another is generally required for every single day in the audit period. Maintaining, and then producing this evidence on demand, is obviously a time-consuming process, and—like the statutory residency test described below —one that requires an examination of diaries or appointment books, expense reports, credit cards, phone bills, frequent flier statements, passport, and other similar documents. NEAR AND DEAR This factor is often the most unusual. The auditor will investigate the location of those items that are of value to the taxpayer, whether the value is monetary or sentimental. Insurance riders are also often used by auditors to attempt to verify the location of treasured items. They are “those personal items which enhance the quality of lifestyle.” We like to call this the “teddy bear” test, looking for the things it just wouldn’t be “home” without. FAMILY This factor used to be considered only if the auditor was unable to reach a conclusion using the other four “primary” factors. In today’s residency audits, however, the “family” factor is analyzed along with the other primary factors in the ordinary course of the audit. The scope of this factor, however, is somewhat limited. Auditors are only supposed to consider where a taxpayer’s spouse and minor children live in considering where a taxpayer is domiciled. Indeed, as acknowledged in the Tax Department’s audit guidelines, the location where minor children attend school can be one of the most important factors in a domicile audit. Occasionally, however, the location of other family members (siblings, parents, and so forth) may be determinative in a person’s choice to change domiciles. When we find that to be the case, we bring it to the auditor’s attention. WHAT ABOUT CHANGING MY DRIVER’S LICENCE, REGISTERING TO VOTE, ETC? None of the five “primary” domicile factors look to things like voter registration, driver’s licenses, and so forth. Those are the so called “other” factors (so called in the Tax Department’s audit guidelines), and include: the address at which bank statements, bills, and other family and business correspondence are received; the physical location of safe-deposit boxes; the location of auto, boat, and airplane registrations and of the taxpayer’s driver’s or operator’s license; voter registration, and where and when the taxpayer voted; possession of a New York City parking tax exemption; telephone services and activity at each residence; and a taxpayer’s domicile declaration in legal documents such as a will and through property tax exemptions. And although it is important that taxpayers who change their residence actually do these things, generally these aren’t the types of things that are determinative in a residency audit. We like to think of the “other” factors as defensive in nature: We like to have them to back up our residency position, but they won’t be enough to carry the day. ARE THERE ANY SPECIAL SAFE HARBORS AGAINST THE DOMICILE TEST? Yes, there are a couple, mainly to cover people who are still domiciled here but spend very little time in New York or the United States. They are: The “30-Day” Test. This will apply to taxpayers who (1) do not maintain a permanent place of abode in New York for any part of a tax year, (2) do maintain a permanent place of abode outside of New York for all of the tax year, and (3) spend no more than 30 days in New York during the tax year. The “548-Day” Test. This will apply to taxpayers who (1) are present in a foreign country on 450 days of any 548-day period; (2) are not present in New York for more than 90 days of the same 548-day period (and whose spouse and minor children are not present in New York for more than 90 days of that same 548-day period); and (3) whose presence in New York during any portion of the 548-day period that is less than a full year will be in the same proportion to the total number of days in the short period as 90 is to 548. WHAT IS THE STATUTORY RESIDENCY TEST? A taxpayer can also be a resident if he or she qualifies as a statutory resident, of New York State and or New York City, under section 605(b)(1)(B) of the New York Tax Law. This test has two requirements: Maintenance of a permanent place of abode (a “PPA”); More than 183 days in New York WHAT IS A PPA? A Dwelling Place. The first requirement—maintenance of a PPA—has a few different parts. First, the place of abode must be “a dwelling place.” That means that it must be suitable for human habitation throughout the year. A rustic hunting camp lacking running water and heat, for example, would not qualify as a taxpayer’s PPA. Nor would a dwelling that is suitable and used only for vacation purposes by the taxpayer, perhaps because the abode doesn’t have heat in the winter or year-round road access. And if an abode is under significant construction, this can also help to undermine the notion that it is a PPA. Photos, utility bills, construction documentation, and other materials could be used to prove all of this. The Gaied Case. Also, the place of abode must be “maintained” by the taxpayer as a residence for himself. Ownership or a property Statutory Residency interest in the dwelling, for those purposes, is irrelevant. Based on a 2014 Court of Appeals case called Gaied (handled by our firm), in order to qualify as a permanent place of abode, there must be some evidence that the taxpayer used the dwelling as a residence, or had a “residential interest” in the abode. Since that case came out, we’ve been grappling with the Tax Department about what that really means, so this issue is something to investigate and discuss with your advisor as you prepare for the audit. Corporate Apartments. Corporate apartments maintained for use by an executive or employee are one example. If a company maintains a corporate apartment that is used by many people, or if an apartment is maintained for something other than as a residence for the taxpayer or his or her family, that apartment would not be considered the PPA of any one person. The taxpayer under audit would, however, have to prove that the apartment was regularly used by more than one person (and that, given this fact, the taxpayer didn’t have a dedicated space or bedroom within the apartment), usually by providing logs or other proof that arrangements must be made in advance for the apartment’s use. The 11-Month Rule. Finally, the PPA must be maintained for substantially all of the year. The law contains the “substantially all of the year” test, and the Tax Department has historically interpreted that as a period of time that exceeds 11 months. So under this “11- month” rule, if you get rid of your place in mid-November or acquire your place in early February, you should not be subject to the statutory residency test regardless of how many days you spend here. HOW DOES THE DAY COUNT TEST WORK? The second requirement for statutory residence—spending more than an aggregate of 183 days of the tax year in the state (and in New York City, if City residency is an issue)—is often the most difficult and frustrating aspect of a residency audit. To begin with, the 183-day test does not apply to full days only. “Days” for this purpose are parts of days—and any part of a day is equal to a full day in New York. So, for example, if the taxpayer wakes up in his New York apartment on Saturday morning, drives to Atlantic City for the weekend and returns to New York after dinner Sunday evening, he still has two days in New York (he woke up in New York on Saturday and went to sleep in New York on Sunday). Also, the burden of proof is on the taxpayer, and unidentified or undocumented days are counted as New York days. Thus, if there’s no proof of where the taxpayer was on a particular day, can you guess how the auditor will treat it? Although any part of a day counts as a day, there are a couple special exceptions: Travel Days. Presence in New York is disregarded if it is solely for boarding a plane, train, ship, or bus for a destination outside of New York or if it is a continuation of travel begun outside of New York. For example, if you depart from Connecticut and drive through New York to Maine, your time in New York is not considered for statutory residence day count purposes. If however, you leave the highway to have dinner, the day could become questionable. Medical Days. Treatment in a New York medical facility is not counted as days in New York for statutory residence purposes. This is inpatient care; treatment as an out-patient still counts as a day in New York. In terms of the documentation needed during the audit, there’s a whole laundry list of items to consider, including: Cell Phone Usage. These records have become the most important source of documentation to track days. Most cell providers maintain records that show where the taxpayer’s phone was (or what tower the taxpayer’s phone pinged off of) whenever a phone call was placed or received. Other providers, such as AT&T, also provide location records documenting cell tower locations for every text and data usage event, too. The tax department can subpoena these records, or we can usually get them ourselves. Credit Card/ATM Statements. Taxpayers tracking their New York time and spouses/children should maintain separate credit cards. American Express separates purchase detail for each separate cardholder on monthly statements, but other companies that aggregate purchases made by various cardholders on a single statement pose serious difficulties for taxpayers on audit. Keep an eye out for entities that generate “false positive” New York activity, which can occur because a credit card is on file at a dry cleaner, at a grocery store, or other similar location, or because of online or remote purchases. Personal Diary. The Tax Department should accept a personal, contemporaneous diary on audit as proof of a taxpayer’s location, but it often doesn’t. The credibility of a personal diary is considerably bolstered by corroborating third party documentation. Outlook or Similar Electronic Calendar. These are useful too, but taxpayers can retroactively alter and adjust electronic calendar appointments and entries, which limits the usefulness of these types of calendars on audit. Taxpayers should be careful amending calendar appointments, unless done within a reasonable time frame following the original appointment. Flight/Travel Records. Taxpayers should keep all travel records, including boarding passes, hotel folios, receipts for fuel and other purchases, limo and taxi receipts, copies of passports (even if expired), etc. Taxpayers should join frequent flyer programs for commercial airlines they fly with, as the frequent flyer programs can act as a back-up record of the customer’s flight history for a number of years. EZ-Pass Records. EZ-Pass records are a common source of documentation in residency audits, particularly when a taxpayer lives in the tristate area and commutes into New York State or City for work. To the extent possible, taxpayers should be careful not to commingle EZ-Pass tags among several users or vehicles, as it’s often difficult to determine exactly who was in what vehicle at what time when tags are shared. Each family member should have a separate EZ-Pass account in his or her own name. It’s sometimes difficult to obtain EZ-Pass records from a non-New York EZPass authority, which makes saving EZ-Pass statements as they’re generated more important. Driver Logs. If a taxpayer has a personal driver or limousine service, it’s important for the driver to keep a detailed and contemporaneous log indicating who was in the car, the origination location and destination of each trip, and date and time of each trip. Landline Phone. It’s often difficult for taxpayers to obtain detailed reports of their landline telephone usage, and sometimes this information would be of limited value anyways, because multiple users could be making or receiving phone calls (including staff and visitors). This doesn’t stop the New York taxing authority from issuing subpoenas to obtain landline call detail, however. Swipe Card Records. Many companies and buildings maintain records and logs of an occupant/employee’s entrance/exit detail through electronic entry systems. When these records are available, auditors are requesting them. These records are often destroyed on a revolving basis, however, and thus may only be available for a limited period of time. USE OF TECHNOLOGY TO TRACK DAYS Given the effort and pain associated with keeping records to prove how many days an individual has spent in a given jurisdiction, it may make sense to use technology to automate the process. Monaeo, for example, has designed software to track the days spent in relevant jurisdictions. Monaeo uses the GPS on a mobile device to do this while protecting the individual’s privacy. Monaeo has designed its software to: Issue a warning when a user is close to a limitation that may create residency in a specific jurisdiction, such as 183 days in New York Automatically generate a third-party record of locations, which may help defend the taxpayer in the event of an audit IF I WIN THE RESIDENCY TESTS, AM I DONE? Not so fast! You still have to establish that, as a nonresident, you correctly allocated your income to New York. Under New York’s rules, nonresidents of New York are required to pay tax on income that is derived from “New York sources.” Here’s a listing of the typical types of income that could be treated as New York source income: Wage income associated with days worked in New York Director’s fees Commissions derived from New York customers Income from partnerships or other flow through entities And here are some items that would normally NOT constitute income from New York sources: Investment income derived from stocks or other “intangible” assets Gains on the sale of property located outside New York Income from public pensions HOW DOES THIS “ALLOCATION” AUDIT WORK? Normally the auditor will ask to see copies of W-2s, employment agreements, stock option agreements, etc. to determine how you earned your wage income. Then we have to do a similar kind of “day counting” that we did for the statutory residency part of the audit. But here, the focus is on workdays, and determining the percentage of days worked in New York over the period of time in which the income was earned. All of the recordkeeping items above can help here, plus things like expense reports, attendance summaries, etc. can be helpful. The rest of this audit process will depend on how you earn your income. If you made money from buying and selling properties, the auditor may request records detailing the underlying transactions. If you earned income through partnerships or other flow through entities, the auditor will likely request copies of the K-1s associated with those entities. Or if you earned your income through sales of tangible or intangible assets, the auditor will be looking to determine whether any of those assets were related to New York sources in some way. HOW LONG IS THIS AUDIT GOING TO TAKE? Residency audits tend to be slow processes. The accumulation and analysis of the documents can take months. Auditors cannot be hurried in their review of documents. Discussion and negotiation can drag on for months or longer. So prepare for it to take at least 6 months to a year. DID YOU SAY “NEGOTIATION?” Yes. The results here are not always binary, all-or-nothing type conclusions. Many audits are resolved for less than 100% of the tax that might otherwise be due. WILL I BE CHARGED INTEREST ON ANY TAX THAT IS DUE? Yes. In most circumstances statutory interest will be added to any tax liability determined as a result of the audit. It cannot be reduced or negotiated. Interest rates change quarterly but have been generally in the 7.5% range in recent years. WILL PENALTIES BE ASSESSED? New York tax law provides for the imposition of penalties for failure to file, failure to pay, substantial understatement of income, and/or negligence. During the negotiation process, we will always pursue the abatement of such penalties as a condition for settlement of the case. HOW WILL THIS AFFECT MY FEDERAL TAX RETURN? A New York residency audit generally does not affect the federal return for the year under audit. Under pre-2018 law, the New York tax paid as a result of this audit was deductible on your federal return for the current year, if you itemize your deductions and were not subject to alternative minimum tax. But effective 2018, this benefit basically went away, as deductions for state taxes were capped at $10,000 per year. DOES A RESIDENCY AUDIT HAVE ANY IMPACT ON ESTATE TAXES? It can. A determination that a taxpayer is domiciled in New York applies to income and, potentially, estate taxes. HOW WILL THE NEW YORK AUDIT AFFECT MY HOME STATE TAX RETURN? We may advise you to file a protective refund claim with your home state to keep its statute of limitations open until the New York audit is concluded. Then, some of the additional New York tax paid may be used to claim a credit from your home state for taxes paid to another state. This is not a dollar-for-dollar calculation and will be limited to the amount of tax you actually paid to that state on the New York income as well as that state’s rules with respect to allocation of income and other items. WHAT ABOUT NEXT YEAR? Domicile, once determined, remains the same until you take some action to change it. If domicile is the only issue of your audit, and the auditor agrees you are not domiciled in New York, there should be no subsequent audit unless you relocate to New York or take some other action that might be construed as relocating. Statutory residence stands alone. It can be examined every year. As a practical matter, though, our experience has been that a taxpayer who has proven they did not spend 183 days in New York during the audit period will probably not be audited again for several years. A taxpayer who was unable to prove that they did not spend 183 days in New York during the current audit period will almost certainly be audited again for the subsequent years. Allocation may be reviewed every year. In our experience, if a taxpayer proves that he has allocated correctly in his current audit period, the likelihood of a subsequent audit is greatly reduced. THE POTENTIAL FOR DOUBLE TAXATION? Can you be a resident of two states (and pay two sets of State Taxes)? YES The Barker Case- An expensive outcome of being caught between being a resident of CT AND NY- and having two pay two sets of state tax. BONUS: COVID AND THE CONVENIENCE RULE IN NYS STATE New York imposes a tax on non-residents for income “derived from sources in” New York, including income from a “business, trade, profession or occupation carried on” in the state. For non-resident employees who perform services both in and outside of New York, the income derived from New York sources is determined by the proportion of days worked in New York versus days worked everywhere else. Under the convenience rule, taxes related to work-from-home days for non-resident employees assigned to work in New York are generally allocated to New York, regardless of where the employee lives. HOW DO WE STAY IN TOUCH? MARK KLEIN at HODGSON RUSS MARK KLEIN LINKEDIN WEALTH ACTUALLY https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

GRIFFIN BRIDGERS wears two hats – estate planning attorney, and content creator.  He is a partner with the law firm of HUTCHINS & ASSOCIATES in Denver, Colorado, and also is piloting a fledgling media venture centered around bespoke tax and estate planning education in the digital age.   IN THIS EPISODE: Quick tour of the changing estate planning landscape and the legislative shifts. Why GRIFFIN has started his media company Trends in the business models of the wealth management industry A couple new developments in outside (private equity ownership) of LAW FIRMS and ACCOUNTING FIRMS that bear monitoring. This could have wide ranging “aggregator effects” similar to what we have seen in the RIA space. Will these be good for the industry? LEGISLATIVE FLUX Chaos and disorder with legislative flux right now . . .What are you seeing? Crystal Balls often don’t help . . . INSIDE BASEBALL IN THE WEALTH MANAGEMENT INDUSTRY Service Models What are the models that are out there that you like? What “should” services include? Is there an optimum model? What is the value proposition?  Does it change? The Importance of Transparency (“Truth in Speaking”) Appropriate Fees- how “at risk” is the 1% AUM fee? CONTENT CREATION AND ESTATE PLANNING Let’s get into the media side of things . . . you have a terrific Youtube channel that sets out various concepts in estate planning- How does that help your practice? What slot were you trying to fill? Somewhere between Estate Planning 101 and Hypertechnical? Is there a Michael Kitces of estate planning? Media- what has worked for you? Effective amounts of time? What problems did you try to solve? Youtube- how did you stumble onto this s your platform of choice? Substack  How do you think about the platforms? What are your plans on this front? For Griffin’s YouTube channel: https://www.youtube.com/channel/UCRaGK2J72zXDvLLcy2aPl-w/videos https://www.youtube.com/watch?v=UBEHBK1ebmY FUTURE TRENDS- LAW FIRM AND ACCOUNTING FIRM AGGREGATION? Non Practitioner Ownership- Law firms AZ, UT, FL Private Equity’s Push into Accounting firms – ex. EISNER AMPER conflicts turmoil with departing partners Private Equity timetables for ownership and investments customization personalization who “owns” the clients HOW DO WE STAY IN TOUCH? For GRIFFIN’s NEWSLETTER: https://griffinbridgers.substack.com For GRIFFIN’s LAW FIRM website: www.hutchinslaw.com For GRIFFINS LINKEDIN: https://www.linkedin.com/in/griffin-bridgers-a4a26a15 https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

In this episode, MATTHEW MCCLINTOCK joins us. Matthew is a high end estate planning attorney and is a Principal at EVERGREEN LEGACY PLANNING which is based in Colorado. He has built his practice at the cutting edge of Cryptocurrency and Estate Planning, a field that is evolving by the day. This is Matthew’s second appearance and he’s on again for a good reason. We last recorded Oct. 2nd 2020. Bitcoin was around $10,000 . . . it’s now valued in the $48,000 range (having spiked over 60K!). Many other cryptocurrencies and digital assets like Non-Fungible Tokens (NFT’s) have seen similar value increases. We’re going to find out: What if anything is different around legacy planning in the crypto world? What is involved with estate planning in the white hot NFT space? How does one properly staff the roles in crypto estate planning structures? Matthew is an amazing resource and is one of the top experts in the field of estate planning and digital assets. Since this is his second appearance, we skipped the usual introduction and went straight into it. Finding experts and prepared vendors to administer trusts with digital assets Staffing Trust Functions Communicating Responsibility at the intersection of Digital Assets and Analog Trust Law Estate Planning for Digital Assets: What’s changed, if anything? Low interest rates Volatility of Prices Current legislation? Potential New Deadlines? Use of Traditional Tools like GRATS, IDGTS and CRUTS amongst others Taxation Issues Exchange issues / security issues 401K / IRA plans – Peter Thiel? Best practices- use of entities? Prudent Investor issues? NFT’s (Non-Fungible Tokens) What is in an NFT? Fungible vs Non Fungible What do you actually own when you buy an NFT? The Actual File (and where is it held?) The “Certificate of Authenticity” on the Blockchain The Copyright to the Work??? (Very Uncertain) What re the main types of assets sold in NFT form (so far?) Digital file / collectibles Conventional art tokenized Gaming characters/terrain – rent or sell   The Bitcoin Standard and what bitcoin did Crypto-asset “succession” planning A Quick Note on Regulation Major Players in Sen. Cynthia Loomis WY & Erik Voorhees, Founder of Shapeshift Balance of intelligent Reg and chilling effect Logical points of regulation: On and Off Ramps, Taxation Who realistically is responsible for KYC in the dark pools? Which Agency gets this “plum” assignment? OUTRO EVERGREEN LEGACY PLANNING https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/