The Upside of Today

The Problem is We Keep Making the Same Mistakes

– Yogi Berra

Amongst the doom, gloom, and sequestering during our current COVID-19 pandemic are vast opportunities. Our collective “Family Office” perspective for Ultra-High-Net-Worth families must consider how best to rearrange holdings and allocations given our disrupted world order. In startup terms, it is time to pivot.

Profits are a function of risk. Value is derived from aligning affordable risk with a proper time horizon. Great business models fail if operated too long or for too short. Families ride with our economic tides whose wealth is never immune to the general forces of a fast-changing economy.

“…given our disrupted world order. In startup terms, it is time to pivot.”

In the middle of our undulating economy, the singular question family offices and their advisors must consider today is: What options are available to create value for future generations?

From my perspective, our market value implosion has certainly wiped out 25+% of general market values, our fundamental economic engine has so far escaped permanent damage. Recognizing the decline is essentially temporary on a family scale, there are several strategies families should consider:

1. Basic Considerations 1

  • Prepare an initial tax projection and consider tax-loss harvesting measures
  • Evaluate the timing of annual family gifts
  • Consider Roth IRA conversions
  • Evaluate low basis asset transfers to senior generations if there is estate tax exclusion availability

2. Advanced Considerations 2

    • Portfolio balancing among the generations utilizing depressed values and low-interest rates to minimize overall generational costs of transferring assets
    • Establish or reevaluate family partnerships including considerations surrounding minority, marketability, and associated discounts to further escape valuation associated transfer taxes
    • For our senior family members (e.g. 70+) who continue to retain significant wealth, consider establishing a 99-year GRAT 3 and likely avoid significant estate tax

“While chaos paralyzes the many, that same chaos provides opportunities for the adventurous.”

While chaos paralyzes the many, that same chaos provides opportunities for the adventurous. Opportunities always exist to improve a family’s relative position. Some improvements generate immediate savings. Some improvements generate deferred savings. Some improvements simply reallocate what is present in better forms.

Ultimately doing something is better than doing nothing and we remain available to assist in our continuing journey.

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UpComing:

On April 7, 2020, Daniel Morris will be interviewed for an upcoming podcast with Angelo Robles of the Family Office Association on this and other topics such as the asset protection post-COVID-19. We know that this will be of interest for you.

Please contact us if you would like to be notified of this and other important podcasts or media events.


Family Office (definition)
A Family Office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations. (source Wikipedia.org)

GRAT (definition)
A Grantor Retained Annuity Trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members. Under these plans, an irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays a tax when the trust is established (source Investopedia.com)

Photo Credits via Flicker.com
Above: Zooey (izoo3y) Below: Ville Miettinen


Daniel Morris
Daniel frequently provides Media Content via Workshops, Podcasts and Printed Articles on topics like Bitcoin and Cryptocurrency, Wealth Preservation and Planning, Global Banking and many other high-level financial topics that serve and demonstrate the Value of our Global Network that should be of interest to those who need Private High-Wealth Services.

If you would like Daniel to speak to you or your Professional Group and bring clarity about the new frontier of the new business tax law changes. Please contact us.

Morris+D’Angelo is the industry leader for many High-Wealth Customers and Organizations.

Daniel Morris, Managing Director, Chief Dragon Slayer707 SW Washington St., Suite 1100
Portland, Oregon, 97205

503.749.6300 – Portland Office
408.292.2892 – San Jose Office
919.929.0595 – North Carolina Office

Daniel Morris, Dan Morris, CPA, Portland Oregon, Dragon Slayer


  1. Any and all strategies should be evaluated with your legal, tax, accounting, and operational counsel. For basic considerations, a limited explanation is provided as all competent tax counsel should be able to assist in evaluating their merits and considerations.

  2. Advanced considerations require proper modeling and evaluation. Additionally, tradeoffs are ever-present and should certainly be understood inside the family structure

  3. The 99 year GRAT (Grantor Retained Annuity Trust) is a strategy designed to leverage low current required interest rates (currently 1.2%), a zero-based effective gift based upon a fully amortized period (the annual annuity payments self-deplete over the 99 year period), the likelihood of increasing interest rates (based upon the current interest rate environment coupled with the sizeable use of government debt, it is reasonable to assume near term interest rates will increase), the fact that the grantor survives one year plus one day or more (failure here defeats this strategy so if terminal seek other options), and understanding that a fixed annuity is revalued at date of death based upon prevailing interest rates and the resulting fair market value is less with increased interest discount rates, the spread between the investment value in and the revised NPV, is excluded from the estate tax calculation that is currently 40%. Example. A $50M GRAT at 1.2% creates an annual payment of $865,793 per year. If the Grantor passes after 3 years (hence 3 payments) and the revised interest rate is 4.8%, the revised NPV is $17.837,142 compared to the invested value of $49.193,014 and the resulting discount of $31,355,862 reduces the future estate tax by $12,542,341.


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