Hemenway & Barnes was in the spotlight Aug. 9, 2012, when Gioia Perugini, Associate Director, Family Office and Philanthropy Services, and Dennis Delaney, a Partner specializing in investment and estate planning, were guests on Radio Entrepreneurs. They were interviewed by Jeffrey Davis, Executive Director, Family Business Association, and Marc Z, Longfellow Staffing.
Following introductions, Dennis and Gioia were asked about Hemenway & Barnes.
Dennis: Hemenway & Barnes is the oldest law firm in Boston. We’re about to celebrate our 150th anniversary. We’re a firm focused on individuals, families and nonprofits. Over generations, we have evolved into a firm that specializes in fiduciary work, which is serving as trustee to family charities, and advising business owners as well. My practice is primarily serving as trustee and doing estate planning, which is drafting wills and trusts, and then administering them and overseeing investments.
Gioia: As part of our Family Office and Philanthropy Services, my role is to work with individuals, families and charitable trusts on their philanthropy. It ranges from negotiating specific gifts to a particular charity to helping manage and run family foundations, to doing research on a particular charitable organization or a particular field of interest for a family or an individual.
Marc: I never knew there was so much involved in philanthropy and all the aspects that a firm like yours can help a client.
Gioia: We often say that we provide a whole range of services, depending on what the client needs. So, they may have had an estate plan done by our firm that included provisions for some sort of philanthropic entity, be it a foundation or a donor-advised fund, or even their own personal philanthropy. Where my group comes in, our work ranges to everything that helps families go deeper on their philanthropy. So, they may say, “I’m interested in education in the Boston public schools, but really don’t know where to start. Could you help us identify a few organizations or what some of the challenges are?” We can help facilitate that.
Being embedded in a law firm also gives us access to specialized advice around writing a gift agreement. Many philanthropists think, “I know the development office, I know the people involved; I really don’t need to write an agreement. We’re going to do it with a handshake.” Our advice is, to protect yourself and to protect the charity, that gift agreement is a central part of your philanthropy.
Sometimes it’s even ranging in issues that say, “How can I help engage the next generation? How can I teach my children about the world around them?” Often, philanthropy is a good vehicle for that as well. The practice is far-ranging.
Marc: Do you find that you’re involved with selecting certain charities? Especially today, there are so many. Do you have a group that does research on different charities? How do you go about doing that?
Gioia: We do. In some cases, someone may come and say, “I hear a lot about veterans returning to the U.S. I’ve heard about a few organizations. Can you check them out for us; can you look at their financials, meet with their leadership and keep me anonymous in the background?” In some cases, we may also work on a particular issue like homelessness. “Can you help us identify where we might put some resources to help move an issue forward?” We do offer both of those, depending on what a client needs.
Jeff: Gioia, it’s interesting listening to you. I’m familiar with estate planning with other law firms, but I’m not used to seeing anyone like you before. Are you a unique creature to this field?
Gioia: We’re somewhat unique in the context of a law firm. But, in Massachusetts, the provisions that allow lawyers to serve as trustees and private fiduciaries have allowed that practice area to grow. Oftentimes clients don’t want to separate their estate planning and the financial and tax considerations that they have from their philanthropy. Oftentimes they don’t want to bring it outside that trusted relationship that says, “My daughter might not be quite as motivated because she knows she’s coming into some wealth. I want to get her excited and involved.” And oftentimes philanthropy will do that. Hemenway & Barnes’s formal practice area, that dates back around 15 years.
Marc: Do you also have relationships with certain charities? For example, I know some people who have wealth that want their kids involved with certain charities, or they’re involved…
Jeff: Marc, you’re involved with Dana Farber, correct?
Marc: Correct. For example, we have someone like a Jim Rappaport who gave a lot to Dana Farber and he has his child involved because he thinks very highly of it. So, do you get involved in that respect, too, analyzing opportunities for families? How much are you involved with families?
Gioia: Yes. Oftentimes we may know a particular charity from either our legal practice that focuses with nonprofits, or from just being in the traffic, that is looking for board members or that has a junior committee where someone could get really involved, not just with their money but with their time and their own volunteering.
Marc: What’s interesting, Gioia and I were talking in between the segments, and one of the things that Gioia was telling me about was she’s an ombudsperson with families. When charities are after the families, and the families want to make good. But, at the same time, families have to be careful about over-pleasing and under-pleasing. You step in. You were giving me an example of how you were looking out for your client.
Gioia: Right. There might be an instance where you and I might have kids that play together on the soccer field. You’re organizing something for the Dana Farber – and you need some resources or a sponsorship. It’s often easier for a client to say, “That’s handled out of my philanthropic advisors at Hemenway & Barnes. Just give Gioia a call, and she can help facilitate it.” Then they don’t feel they’re mixing business and pleasure when they don’t want to mix business and pleasure.
Jeff: I keep hearing about donor-advised funds. I’m not sure I know what they are. Can you give us some kind of an explanation of what it is and how they work?
Gioia: Sure. A donor-advised fund is a specific animal. It’s actually a public charity. The main advantage is that you can make a gift to open a donor-advised fund, and it’s considered a charitable gift and taxed as charitable gift at the time you make the contribution and open the donor-advised fund.
So, that counts as your charitable deduction and as your charitable gift. And, then there are – unlike a private foundation – no restrictions on it as to when you need to make the payout. A private foundation, typically you have to pay 5% of the assets at the end of each year. It’s a very specific payout.
In the case of a donor-advised fund, you can make and recommend grants from that fund over time. So, it’s a little bit more sophisticated than just writing checks out of your checkbook and allows you the opportunity to use that as a resource over time.
Jeff: We talked about this off-line, and I want to ask you about it again. Lately, I’ve been hearing a comment about not letting the tax situation drive people’s decisions this year. I know a lot of people in their 70s and 80s are trying to take advantage of this one-time gift situation. But I’m talking to people in their 50s and they’re wondering should they really be locking things up and doing this now, even though they may lose this tax advantage for all time.
Dennis: What we tell clients about gifting is that the first law of gifting is to never give away what you can’t afford to live without. When you’re giving it away, it will no longer be yours. And, that will be forever.
Some people are under the misperception that you can give it away and still sort of have access to it, which is a risky proposition. There are some situations where you can put that in place, but they’re relatively few. If your goal is to have it not be taxed, you really do need to effectively give it away.
So, you’re right, Jeff, we’ve seen this, too. 2012 is ostensibly the last year that the exemption will be in place where you can give away $5 million, and then it’s scheduled to go back automatically to $1 million next year. And the rates are scheduled to go from a flat 35 percent to a much higher, blended rate that will top out at 55%.
So, there is something of a panic out there and there’s certainly a lot of clamor among the advisors telling all their clients and prospects to get on this. It’s interesting, though, since the crash in 2008, even wealthier folks have had a little bit of reluctance to jump because they know that they are permanently going to have to do without that. I should point out that just in terms of the overlap between charitable giving and this tax exemption, we’re talking about giving to your family. So, a trust for kids or grandkids, maybe you can have your spouse be a beneficiary if you want to make it your own last line of defense. You don’t need to worry about that when you’re talking about making gifts to charity because there the tax code already gives you a deduction and that’s a separate thing.
Jeff: Let’s assume that I’m a control freak. Can I be both a beneficiary and a trustee?
Dennis: It depends on what your goal is. A few states, including New Hampshire, have recently authorized people to set up irrevocable trusts for their own benefit, where you are a beneficiary and you’ve set it up. Now, you don’t want to be the trustee of that trust. But under these laws, you can protect it from your creditors. So, you put it in this sort of trust and if you get in a car accident or for whatever reason somebody has a claim against you, the assets of the trust can have an enhanced level of protection than they would if you just owned them outright.
It’s a bit of a sliding scale. If you’re looking to get a tax advantage so that 55% tax doesn’t hit it and you want to be a control freak, you just have to understand that it’s a bit of a sliding scale. The more control you retain over it, the more likely that your tax goal will not be achieved. At a certain point, you say, “Why do it in the first place? Just keep the assets.” If you need to have control over them, forget about the tax goal. Don’t let that tax tail wag the dog, if that’s your most important priority.
I think that’s what you’re alluding to in 2012…
Jeff: Marc and I are both in our 50s and we both have some assets we’ve accumulated and we both have children. So, it’s something we would be considering.
Dennis: That’s right. Keep in mind that when this current tax regime came into place, it was proposed by President Obama, which nobody expected at all in 2010. It came sort of out of left field. It was not a Republican proposal. I’m sure there were advocates over time, and they obviously wanted repeal all together. But for a sitting Democratic president to increase the exemption from what was 3.5 to 5 really caught the advisory community off guard.
So, who knows what’s going to happen? Most people think we’re going to go back to 3.5, but you don’t necessarily have to panic right now. If you’re a $10, $20, $100 million family, you should make use of this this year, definitely. But if you’re $5 million or so or even in the $10 million range, you should look before you leap.
The interview wrapped up by referring listeners to the Hemenway & Barnes web site – www.hembar.com – and to e-mail Dennis at firstname.lastname@example.org and Gioia at email@example.com. Call Gioia at 617.557.9777 and Dennis at 617-557.9722.