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Teachable Moments to Develop the Rising Generation

Planning for a Liquidity Event

What Do Millennials Really Want?

Spring 2017


THE ADVISOR Insights for Integrated Wealth Planning


Sizing Up the

(BIGGER) Opportunity Set Today’s private companies could be tomorrow’s Fortune 50 businesses.


What Does This “Me Generation” Really Want? .....................................Page 2

RECENT AWARDS Excellence in Investments and Trusts & Estates Private Asset Management (PAM) awards: n Best Investment Platform—Performance n Best Trusts and Estates Division

Private Market Investing: Sizing Up the (Bigger) Opportunity Set ...................... Page 4

Family Wealth Report (FWR) award:

n Private Client Investment Platform

PAM annually awards exceptional achievement in private asset management and, for the past seven years (2011-2017), has recognized CIBC Atlantic Trust with more awards than any other firm. Also, this is the third consecutive year that CIBC Atlantic Trust has received recognition from FWR. We are tremendously thankful for the ongoing support of our clients and associates, as well as the commitment and hard work of our professionals—all of whom have made these distinct honors possible. See the back page for additional information on awards.

NOW: New On the Web Planning for a Liquidity Event: Before You Sell That Business ............... Page 8

CIBC Atlantic Trust in the News The Wall Street Journal: Rising “Real” Yields Signal Optimism on Economy


Financial Times: US Stocks Knocked As Healthcare Vote Gets Pulled

Brainfood............................................. Page 1

Massachusetts Lawyers Weekly: Digital Assets Have More Value Than We Think

Quick Smarts .................................... Page 10 Teachable Moments to Develop the Rising Generation ...................... Page 11 Takeaway: Delaware’s Trust Laws on Self-Settled Asset Protection ...........Page 13

Socialize With Us Read featured blogs at Gary E. Pzegeo, CFA: Federal Reserve Raises Short-Term Rates By 0.25% Duncan M. Edwards, CFP®: 6 Signs 2017 Is the Year to Monetize Your Hobby

Questions or comments? To send a note to the editor or to request a copy of The Advisor for a friend, family member or colleague, please email

Linda S. Beerman: Honoring National Women’s History Month, Celebrating Legacy Paulina Mejia: CIBC Atlantic Trust Heads to the Sunshine State for the 51st Heckerling Institute on Estate Planning Look for daily updates on LinkedIn, Twitter and Facebook—follow, interact and socialize with us.

Brainfood New year, new president, new economic outlook. What are you reading, watching or listening to in the areas of political history, historical biographies, politics and social sciences, or fresh interpretations of historical events that give you further insight or thinking into our world?

Brainfood What we’re reading, thinking & discussing

READ The Undoing Project: A Friendship That Changed Our Minds, by Michael Lewis. “This is the personal story of two individuals who worked on studies about the human decision-making process that resulted in a Nobel Prize in the field of behavioral economics. The book is highly readable and focuses primarily on the relationship between two Israeli psychologists with different personalities, and from diverse backgrounds, who have made a difference by using science and algorithms to study the workings of the human mind.” – Alan S. Fields, Managing Director and Senior Relationship Manager Hillbilly Elegy: A Memoir of a Family and Culture in Crisis, by J.D. Vance. “This memoir is an easy read, allowing us to see a world we rarely experience in the field of wealth management. It is also useful in helping us understand the recent election and some of the challenges facing our country.” – Barry N. Berlin, CFA, Managing Director and Senior Relationship Manager But What If We’re Wrong? Thinking About the Present as If It Were the Past, by Chuck Klosterman. “This book looks at the modern-day world through futuristic eyes, as if life today were a thing of the past.” – Brent L. Taylor, Vice President and Business Development Officer Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations, by Thomas Friedman. “The author guides us through the 21st century and teaches us how to cope and survive in the new, fast-paced digital age.” – Frederick L. Weiss, CFA, Managing Director and Senior Investment Manager Foresight 20/20: A Futurist Explores the Trends Transforming Tomorrow, by Jack Uldrich. “In this book, the author highlights future trends in the areas of emerging technologies, artificial intelligence, biotechnology, robotics and social media, among many others, that continue to evolve and disrupt today’s world. He stresses the importance of being aware of the innovations taking place and the way they will impact everyday life for all of us in the very near future.” – Karolina K. Bednarska, Vice President and Business Development Officer

LISTEN “Revisionist History,” by Malcolm Gladwell. “In these interesting and thought-provoking podcasts, Gladwell revisits an event, idea or person from the past, and highlights something overlooked or misunderstood about the subject. It may make the audience look at a topic from a different perspective.” – Gabrielle D. Bailey Managing Director Chief Fiduciary Officer “How I Built This,” hosted by Guy Raz. “This podcast features entrepreneurs and CEOs of some of America’s best companies. It’s interesting to learn about the American dream and how successful people approach their work.” – John W. Winslow, CFA Managing Director Senior Relationship Manager “NPR Politics Podcast,” with NPR political reporters. “This weekly podcast recaps the week’s news and offers special podcasts every time something notable happens—which has been fairly often with the new administration. They do a good job of staying reasonably neutral.” – Joshua S. Miller, CFP® Managing Director Senior Wealth Strategist

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What Does This “Me Generation” Really Want? Millennials are lazy, self-centered, entitled narcissists who are digital addicts. No, they’re outward-looking, cause-centered collaborators with starry-eyed visions to change the world and show the preceding generations a thing or two. Both of those statements are extreme generalizations—and the truth is that generalizations about any generation can be harmful in our families, workplaces and society at large. (And by the way, the baby boomers are considered the first “me generation”­—and every generation after is also the “me generation.”) We talked with two members of the millennial generation—siblings Jim Chowdry and Olivia Chowdry, whose family is a CIBC Atlantic Trust client. Jim, 28, lives in San Francisco and advises the Chowdry Family Office on investments with an environmental, social and governance focus. Olivia, 25, is a professional equestrian with plans to return for an MBA in social entrepreneurship in a couple of years. Some of their thoughts may surprise you.

Question Since we’re talking about generalizations, what do you think of baby boomers and the way they’re often presented? Olivia: There may be a lot of truth to the perception that baby boomer parents have “supported” or provided for us more than their generation was. Some will argue that many of us haven’t had to experience struggle in the same way our parents did. My own parents worked to build something from the ground up— it was a struggle for them. The pattern of reliance on our parents could be interpreted as laziness. I know I’m guilty of that sometimes! But I am well aware of my dad’s hard work to build a business. He really fell flat on his face a couple of times. Failure was an important part of building his character. The story of his failure and then success is ingrained in me. I really appreciate that about him and many in the baby boomer generation. Jim: I think we’re fortunate to be able to look at the baby boomer generation

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and understand all they’ve gone through and adapted to in the past decades. It’s amazing how much has changed. My generation is conditioned to look to the internet for answers. We have access to a lot more information than our parents did, and while that makes some decisions easier for us, it also makes some harder. Baby boomers probably had to make decisions in a different way, often by trial and error.


How do you feel, in general, about money?

Olivia: My mother has always led by example on that matter. Her view is that while we may have money, we don’t have money to waste, nor should we just sit on our money and not use it for good. I think a lot about how my parents were raised—this may sound trite, but her generation was taught that there should be no such thing as wasting food. Clean your plate, you know? We were taught that we have a responsibility to give to those less fortunate than we

are, whether it’s your money or your time. That’s certainly made me more conscious of the world in which I live. I try to hold myself accountable to that view of money as a useful tool. I don’t want to get too comfortable with the fact that many of us can go to Starbucks every day of the week if we want and we don’t even think about it. Jim: I’d like to answer that by describing what I learned on a trip to Pakistan, my father’s home country. Not only was the trip enlightening in so many ways—getting out of the bubble of the media here gives you a completely different perspective—but I learned that my family there is funding a school in Abbottabad where most of the students are girls. They have goals of becoming engineers, doctors and lawyers, and their dreams are being met with optimism and opportunity. The family converted an old house that was owned by family members into this school. I was so inspired by how they are using their money and other resources to provide this opportunity.


Millennials are often described as more “socially conscious” than previous generations. Do you agree?

Jim: I do, although I think it can be very difficult to nail down the real issues. We certainly have plenty of information—and choices—but the myriad issues that affect our lives can lead to anxiety. I examine this all the time—Where do I devote my time and my energy? Friends of mine have said to me, “Jim, you’re in a very fortunate position to help with issues and advocate for change. What are your plans to do something?” You can bring decisions like this down to your own level of understanding. For example, I took a look at the company that makes the toothpaste I like and found that they have done some serious things to address sustainability of the palm oil they use in a lot of products. That makes me a happy shareholder. So, when people say that one person can’t really make a difference, my answer is that I believe you can—by making choices that align with your values. Olivia: I do think many of us are. Again, I’m going to reference my upbringing. My mother has been a strong advocate for giving to education and other initiatives in the developing world. And I went to a liberal arts college, which I credit for giving me a world view a bit bigger than what’s just in the news headlines. Jim and I went to a NEXUS conference [NEXUS Global Youth Summit], which brings together a network of gogetter young people who are passionate change-makers, entrepreneurs and social impact investors. I believe in their mission of making change by being innovative and connecting to others who want to do good and do well. Having opportunities such as going to NEXUS has reinforced my feeling that trying to effect change can bring you a lot of joy.


How does growing up in the digital era inform your thinking and your actions?

Olivia: I think the digital era can actually be a little dangerous. For example, “The Daily Me” refers to news sources you can customize to your interests and your viewpoints. While I like the idea, if we get only news and information we’ve tailored to our current views, we’re not really challenging ourselves, not asking “What makes this true or valid?” I may be unusual for my generation, and a little old school, but I like print publications and I actually read the Financial Times and The Economist. That being said, I am glued to my phone, like almost all millennials. It’s almost embarrassing to check emails while you’re in bed in the morning! In a strange way, it seems like all the connectivity on social media actually disconnects us—after you see the latest pictures of kids, vacations and where your friends went to dinner, you already know what everybody’s been up to and there’s not much to discuss when you actually see each other. Jim: I’m not the person who reads a print magazine or newspaper. I consume almost all of my news from online sources that I can tailor to my own interests. Like Olivia, I agree that approach can result in an echo chamber. People want to have validation of their beliefs and so all of us seek out sources that do that. It’s hard to find the right balance. For validation, and a second opinion, of financial advice and information, I always go to Morningstar and Seeking Alpha. And, many times, I simply seek out friends or colleagues who have a lot more experience than I do with financial matters and ask for their opinion.


So in this digital era in which you’ve grown up, are personal relationships important?

Jim: I read a book recently that said that 80% of the effectiveness of human communication is lost when you’re not communicating in person. Many of us use our physical self to describe things in person—with our hands, our eyes and our body language. A lot of that is lost across the digital divide. I’ll be very interested to see if artificial intelligence and virtual reality can close some of that gap.


Do you consider yourself financially literate?

Olivia: Finances and other “grown-up” issues can be a bit scary for someone my age. I consider myself only moderately financially literate and feel most of my friends would say the same. A friend of mine was required to take a financial literacy class her freshman year of college. That should be a requirement more places—we need a good working knowledge of finances to begin our adult lives.

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Sizing Up the

Opportunity Set N

ot too long ago, private equity investments were viewed as “exotic” investments. But no longer: Private equity is now a mainstream part of institutional portfolios globally, generally ranging anywhere from 5% to 25% of portfolios’ assets. Institutions are investing for portfolio diversification and for return.

We recently talked with two external experts on private markets investing—Michael A. Elio, a partner with StepStone, and Raheel “Raz” Zia, a partner and co-founder of Aldrich Capital Partners—on what individual investors should know if they’re considering a private equity investment. Elio and Zia were joined by two CIBC Atlantic Trust analysts in private market investments—Lester P. Duke, CFA, senior vice president and senior investment analyst, and Daniel A. Criscuolo, vice president and senior investment analyst.

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Michael A. Elio Senior Partner StepStone


Give us an overview of the private market and why investors might consider it. Elio: It’s a very broad and complex space that encompasses all types of investments not traded on public markets. Currently, it represents about $3.6 trillion in investments and is expected to grow about 9%, to about $6 trillion to $7 trillion, by 2024, according to our research at StepStone. It’s been quite a strong-performing asset class lately, which is driving a lot of money into it, in part because we’re in an environment with many low-yielding assets. For that reason, it has been the darling of many portfolios around the world. Private market investments can also be a good portfolio diversifier. Publicly traded stock markets are really a very small piece of the investable universe. Millions of private companies potentially need or could benefit from an investment by a third party. Zia: A big advantage of private market investing is that you can get access to smaller, more innovative companies that are pursuing very specific strategies. Our economy is largely built on innovation and entrepreneurship, and private equity targets this vital segment of our economy. You can create a diversified portfolio of private investments, for example, by investing in healthcare services, in healthcare IT and in business services, and those can be further overlaid with a distinct geographic focus. Today’s private companies could be tomorrow’s Fortune 50 businesses. If you look at the top 10 companies listed on the New York Stock Exchange, there are large enterprises that didn’t exist 25 or 30 years ago, including companies such as Google, Facebook and Amazon.


Which sectors look most attractive now—and why?

Zia: The U.S. economy is transitioning from what has been a low-growth environment since 2009 and 2010 and looks likely to move to a mid- to highgrowth environment. What appears to be a pro-business administration has put forth plans for fiscal stimulus, lower taxes and less regulation, all of which are conducive to small business formation. The sectors we believe can benefit from this environment are those that are applying technology to their operations and processes. Historically, sectors such as hospitality, real estate, financial services, transportation and logistics have been slow to adopt and implement new technologies, but they are starting to automate more of their internal and customer-facing processes because of the reduced cost and broader availability of technology. We also think healthcare will continue to be a great industry sub-segment— it’s faced with pressures to improve the delivery of care and reduce the cost of providers such as physician groups and hospitals, and the sector is now driving more efficiencies through the system. It takes a lot of analysis and access to industry relationships and know-how to determine sub-segments of healthcare that will continue to benefit from these market drivers and are less reliant on government subsidies and grants, which are likely to change.

Michael Elio is a partner with StepStone, a global private markets firm that oversees more than $100 billion of private capital allocations, where he is responsible for portfolio construction and management for the firm’s high net worth initiatives. Elio is also co-head of the middle/large market buyout and secondaries teams. He has more than 20 years’ experience in private equity, including with LP Capital Advisors, State Street Corporation and Credit Suisse First Boston.

Raheel “Raz” Zia, CPA Co-Founder and Partner Aldrich Capital Partners Raheel “Raz” Zia is a partner and cofounder of Aldrich Capital Partners, which invests equity capital in privately held companies. Prior to co-founding Aldrich, Zia was a managing director in the principal investment area of Goldman, Sachs & Co. in San Francisco, where he helped launch the growth equity investing practice. He has worked extensively with growing, entrepreneurial businesses and their executive teams.

Lester P. Duke, CFA Senior Vice President CIBC Atlantic Trust, Boston Lester Duke, CFA, is a senior vice president and senior investment analyst with CIBC Atlantic Trust, responsible for investment manager due diligence and selection on the Alternative Investments Team, which is part of the Multi-Manager Investment Program. He has more than 34 years of industry experience.

Daniel A. Criscuolo Vice President CIBC Atlantic Trust, Boston Daniel Criscuolo is a vice president and senior investment analyst with CIBC Atlantic Trust, where he is a private equity analyst on the Multi-Manager Investment Team. He has more than 11 years of industry experience.

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The Broad Spectrum of Private Equity Investing Seed/ Start-Up

Follow-On Venture Financing

Concept Stage

Development/ Later Stage

Expansion Capital

Mature Enterprise



Are valuations too high to invest? Is the private equity market oversaturated? Elio: You also have to look at the strategies that appear most attractive. Right now, we’re looking at all the private market strategies, but what really stand out are the later end of venture capital and the lower end of the buyout space, the small and lower mid-market, often referred to as growth equity. These strategies tend to be the ones that are much broader and not quite as “over-shopped” as some other investment stages of a company’s life cycle. The growth space right now represents only about 7% of private market capital. With private equity expected to go from $3.6 trillion to about $6 trillion by 2024, these areas still have a lot of opportunity to drive operational improvement and return. Zia: I’d add that in these areas, there tends to be more focused investing, with greater alignment between the fund managers and the companies. In addition, there is generally more potential for value creation in small businesses. There’s a bigger pool of potential assets for growth equity, and entrepreneurial small buyout managers are able to benefit from the information asymmetry, pronounced inefficiencies and opaqueness that typically exist in the universe of small private companies. As

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Buyouts/ Mezzanine Debt; Real Assets

Distressed Debt

Reengineering/ Restructuring


you move up to mid-market buyouts and beyond, the market is much more efficient, intermediated, transparent and pricecompetitive, and hence, potentially overvalued, due to the inherent competition in efficient markets.


How might impending policy changes affect private market investing? Zia: Many of the proposed changes are very pro-business, whether it’s the reduction of regulations for both large and small businesses or potential reductions in corporate tax rates, which includes the goal of repatriation of cash held overseas by a number of large companies. That cash likely would be reinvested in the U.S. Some of the measures that the administration has been talking about as far as supporting domestic trade could be very good for businesses focused on building and selling products and services within the U.S. The flip side is if a company is export-driven or it’s a non-U.S. business selling in the U.S. market, the possible changes may not be as advantageous. But even for domestic companies that may benefit from policy changes and currently operate in a low-margin environment and are reliant on cheap credit, they are going to have to face the realization that in a rising interest rate environment their

models and their margins are going to become more challenged and compressed. That also applies to some types of private equity strategies, which are heavily reliant on easy credit to finance and fund the acquisitions and investments they make. Elio: I totally agree. We’ve heard a lot of positive talk coming out of Washington that could impact the business environment, but we don’t know the specifics yet. The optimism is there, but we can’t yet gauge the impact of proposed changes on our investment space. That said, we certainly haven’t heard many proposals that would change our optimism right now. Duke: One other thing I’d add to that is what’s going on from a macro point of view. What you’re seeing is a convergence on the large end of the market, both public and private. There are fewer IPOs and longer holding periods in today’s markets. This has resulted in stretched valuations, particularly for larger companies, and more competition in the private equity market for good investment opportunities. That reinforces our focus on the small- and mid-market space, which is less impacted by these factors. Certainly, there are fewer valuation pressures in the low to mid-market relative to the high end of the market. There are also more exit opportunities to lower middle-market strategies, as they can sell to strategic buyers as well as larger private equity funds. These larger private equity funds have excess cash available in today’s oversupplied large end of the buyout market.


Why might clients consider private investments for a portfolio? Duke: Private market investing typically focuses on long-term value. These businesses don’t have the distraction of focusing predominantly on short-term

Investments financial results, the typical focus in the public markets. The value of smaller and mid-cap companies can be significantly enhanced by professional investors— often, investments in small, growthoriented companies may be the first institutional money they’ve received. A goal often is to “professionalize” the business and maximize the potential for return, which is very difficult to accomplish with a larger or public company. Growth capital may help a small- or mid-sized company engage in a merger or acquisition, move into new markets, cut costs or streamline business processes or strengthen the overall management team. There are numerous things a company can do to affect both costs and revenue, but much of it takes time and patience. That’s why private capital is called “patient capital.” Public companies generally don’t have the long-term perspective for the kind of investing that allows for transformative change. However, investors certainly must be aware that this is an illiquid investment—it requires a commitment to holding it for the typical 10-year cycle so

that the active management that typifies private equity can reach its full potential. Criscuolo: Another factor that’s responsible for the historical strong performance is the increased control and influence over the underlying companies. A mutual fund can hold hundreds of public companies, but the fund generally has no control over their direction. A private equity fund has much more control over how invested funds will be spent, including on the company’s marketing strategy, management team composition and potential acquisitions, as well as the timing of these events. That may translate into increased returns to investors. Zia: I think another good point is that with the increasing institutionalization of the private equity business over the last 10 years, there are a number of newer private equity teams and more focused funds that are emerging with the experience and track record of managers who have come out of bigger, more established PE firms. That continues to

expand the opportunity set available to private equity investors, which wasn’t the case seven to 10 years ago. Duke: A goal of a private investment portfolio is to be an all-weather investment, so that no matter where we are in the investment cycle, some managers capture what is performing best in that particular phase of the cycle. That’s the essence of this type of private market investment, especially given its long holding time. Private equity is suitable only for qualified investors who are capable of evaluating the risks of such an investment. It often requires a high minimum investment on which an investor does not receive a return until many (typically 10) years later and which the investor may not withdraw in the meantime. Private equity investing also generally carries higher risk than investing in public markets, and carries certain unique risks regarding valuation, pricing, transferability and the possibility of default. Please discuss your individual situation with your investment advisors.

How Are Private Investments Benchmarked? PME, or public market equivalent, is a benchmarking tool adopted by the private equity industry. In recent years, it has gained increased favorability as it allows private equity returns to be compared directly to public index returns. In the past, this was not possible because public indexes and private equity use different performance measurements. Public indexes traditionally use timeweighted returns (TWR), while PE uses internal rate of return (IRR), a dollar-weighted return. While both methodologies have their strengths and weaknesses, the objective is to accurately compare the two. In simplistic terms, the PME calculator converts public index data into a public index IRR.

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Wealth Strategies

Position for Maximum Value


Why do you want to sell? And to whom?

efore You Sell That Business ...

“Start with the end goal in mind.” It’s an important prerequisite if you own a business and are laying your groundwork for selling it in a few years. But it’s not just about doing good planning for the business—your sale timeline can greatly affect your personal wealth planning goals.


n the course of a given year, thousands of private business owners sell their companies. If you expect to be among that number soon, you won’t be alone: A study done by Pepperdine University found that 64% of business owners plan to transfer their ownership interests in the next decade. It’s not all that surprising when you consider that nearly 52% of business owners are over age 50.* Business owners decide to sell for all sorts of reasons. Sometimes they want to retire, monetize their asset and start a new chapter; pass the business on to the children (or, there isn’t a family succession alternative); diversify their assets—or all of these things—and they want to do it on their own timetable and their own terms. Planning

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well in advance of a sale makes the best sense—the business itself should be wellpositioned for sale and the owner should prepare for wealth transformation and take advantage of strategies for wealth transfer planning and charitable planning. “The earlier you plan, the bigger the set of opportunities for your personal and family goals,” says Ryan Christine Coulson, senior vice president and wealth strategist for CIBC Atlantic Trust. “We’ve had clients come to us just a month before the sale of a business and, while there are tactics we can help implement, it’s far more limited than if we have a year or more. Business owners are often very busy wearing two hats—running the business and seeing the sale process through to conclusion. It’s easy to see how their own planning can fall through the cracks.”

Every business owner thinking about an exit strategy should also think carefully about his or her long-term goals, says Michael Y. Lateef, a partner with the Hanson Bridgett law firm in San Francisco. “That’s very different from your exit strategy being ‘continue to grow the company and see what comes along.’ The strategy for the best results—for both businesses and owners—is to ask what to do to prepare for either outcome: a planned sale or an unexpected offer. The first question we ask an owner is ‘Who would you sell to?’ If the answer is ‘I don’t know, but I know my industry contacts and I’ll get the word out there,’ we advise him or her to think more strategically: You might need to hire an investment banker or a business broker and really work on things that can make the company as attractive as possible. Much of that is internal work to get maximum value for the company.” An early priority may be to clean up the balance sheet. Often in the case of family businesses, expenses are run through the business that really should not be, or loans to family members have never been paid back. Receivables generally should be kept as current as possible. Are there valuable strategic alliances and long-term contracts with suppliers or vendors? If so, they may need to be locked down. If the business requires real estate to operate, are longterm leases in place? The business also may need to secure agreements with essential employees and key management. Improving corporate governance, sometimes lax in family businesses, also may be essential. All of these things can add value to the business when the time comes to sell. This is especially important, says Lateef, if the value of the business will be figured on EBITDA (earnings before interest, tax, depreciation and

Q2 2017

Pre-Sale Checklist amortization), common with technology and other service companies. “A family business may use certain tactics relating to family members’ compensation or atypical expenses in order to minimize corporate tax, but in the long term, those will have an adverse effect on a company’s EBITDA numbers. And while actions to improve EBITDA are good, a buyer may be skeptical if there’s a sudden spike to the positive. The longer runway you can put in place for your sale the better, obviously, and, frankly, many sophisticated buyers will expect two to three years of financials,” says Lateef. “In addition, sellers will typically require some minimum working capital requirement and will factor in the potential cost of hiring a new CEO, CFO or CMO. These functions may have been handled more informally by the owner and family members and often at less than market value, but represent real costs to the buyer.” As important as it is to position the business for sale to maximize its value, it is also extremely advantageous to position the family’s personal financial arrangements to maximize the benefits of wealth planning strategies. If family members are employees of the business and part of your long-term estate planning is to make sure some of the sale proceeds go to family, there are several ways to provide them with some equity and, as shareholders, be part of the sale, and minimize the tax impact on them at the same time. “Certain tactics can make a difference between the equity being treated as ordinary income or as capital gains,” says Lateef. “And early planning can have a critical wealth transfer advantage as well. If there’s plenty of time to plan for the owner’s goals and the heirs’ situation, we can often minimize the tax consequences by implementing transfers before significant appreciation in value has occurred. Typically, early on, the valuation will be lower than at the last minute. The further in advance you can put lower-value holdings

in specialized trusts, the greater the overall transfer tax savings to the family.” (Please see our white paper series “Lifetime Gift Planning Strategies” for more information on wealth transfer strategies, available at Depending on the structure of the sale, liquidity could be one immediate lump sum—or well down the road, Coulson points out. “For a sale with plenty of advance planning time, you and your advisor should have an in-depth discussion about your lifestyle needs and how your cash flow may or may not meet those needs.”

Surprise Is Not Your Friend About 30% of the business sales Lateef handles result from the owner receiving an unsolicited offer. And it’s common for the sales path—from firm letter of intent to closing—with an unsolicited offer to be as short as six to 12 weeks. “In those cases, there is very little that can be done to improve the financials,” he says. “To get maximum value and realize your own personal planning goals, surprise is never your friend.” Minimizing personal income tax in a transaction is frequently a personal goal of the owner and family. For obvious reasons, from a seller’s perspective, it is advantageous to structure the transaction to result in capital gains treatment, according to Lateef. It’s important to consider the impact that the form of the transaction will have on the tax treatment. An asset purchase will have different consequences for a C corporation than for an S corporation or LLC, including potentially unanticipated issues related to built-in capital gains. Further, the timing and manner in which the purchase price is characterized can have a significant impact on the taxable income. As an example, many times a buyer will structure part of

Consider these steps for getting the business ready: 3 Clean up the business balance sheet. 3 Secure agreements with key employees, suppliers and vendors. 3 Lock down long-term leases. 3 Tighten corporate governance. 3 Review compensation and expense arrangements of family members.

Getting yourself ready: 3 Evaluate your cash flow needs post-sale. 3 Discuss with your advisors the benefits of lifetime transfer strategies to reduce overall family transfer tax. 3 Determine the roles of family members after the sale. 3 Consider the best ways to fulfill philanthropic desires. 3 Think about your life as an investor, rather than a business owner.

the consideration in the form of an earnout that is conditioned in whole or in part on continued employment by the seller. “While a seller will want the cash at sale and any contingent consideration to collectively be deemed the purchase price—which can be treated as capital gains—a buyer may want to offset the risk by conditioning payment on the seller still being employed by the company at the time of payment,” says Lateef. “That may be considered as income under Section 61 of the tax code and will be subject to IRS deduction requirements and limitations on golden parachute payments. Sellers are well advised to consult with experienced transaction counsel at an early stage of negotiations to avoid structuring issues.” In the short-term sale scenario, many sellers are able to undertake only a minimum of family wealth transition goals—setting up a trust being the most common. Prior to closing, shares can be transferred from individual names into the trust’s name. “It won’t necessarily reduce their tax burden,

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Wealth Strategies

QUICK SMARTS From Our CIBC Atlantic Trust Team

but the planning window is so short preclosing that it’s often the best an owner can do.” Importantly, says Lateef, most sales now are cash-only, as opposed to deferred stock transactions or mergers. “Cash is king now—liquidity is what most sellers want. If an owner is more interested in diversification of wealth and putting in place wealth transition plans, which is common with those who’ve spent decades building a business, they’re far less interested in a sale that gives them stock in another private company hoping to go public and eventually receiving a big payout.” For many business owners, the transition to managing wealth, as opposed to managing a business, involves a major shift in mindset. Often, people who sell their businesses enter an environment for which they are unprepared. Post-sale, they’re expected to understand complex investment concepts and discern among investment alternatives, understand byzantine fee structures and effectively calibrate risks that they don’t truly understand. On top of that, families must also navigate estate planning, new tax rules and risk management strategies in very different ways than they have before. “These are all things that you can work through with your advisor,” says Coulson. “Perhaps the most important message for owners of businesses whose objectives are both the sale of the business and achievement of their own personal goals is this: Even if you aren’t planning at the moment to sell your business, you could operate under the presumption that someday it may be necessary or appropriate to sell. A similar attitude can be applied to wealth transfer planning. Good planning for your wealth and your family has its own intrinsic rewards. Start early.” *“When It’s Time to Sell Your Business, Will You Get What You Deserve?”,, 04.29.2015.

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What are the main things you suggest clients consider when they’re contemplating the sale of their business?

Bas Solleveld

Jon E. Henderson, CFA, CIC

Managing Director and Senior Relationship Manager, Houston

Managing Director and Senior Relationship Manager, Chicago

Most people get the obvious stuff right— wills and tax planning, for example. What a lot of people don’t think about is this: What’s next? If clients are preparing to sell a company they founded, they likely have spent years and years building it, even being consumed by it. Suddenly, they are faced with a situation where some of their identity has been taken away from them and they don’t have that “mission” when they wake up in the morning. We spend a lot of time with clients discussing life after the sale. How do you manage lifestyle expenses now that you don’t receive a regular salary? How do you navigate health insurance without a company-provided healthcare plan? We try to provide a road map, or at least a list of things to consider that might not have come up before. The sale of a company is usually the triumph of one’s business life, and we want to make the transition to the next stage as healthy and smooth as possible.

Both for yourself and the business, have a good understanding of why and when you want to sell—as for when, the best time to sell is generally before you need to. Assemble the right team of advisors, both personally and professionally. Make peace with the idea that potential buyers may see differently than you regarding where and how your company has value. Consider cleaning up the company, both physically and fiscally, including workspaces and the company’s balance sheet. It can help make the company easier to evaluate. Be completely honest with yourself and with any bona fide buyers in regard to your company’s strengths and weaknesses. Finally, create a post-sale plan for yourself before you complete the sale. Do you want a new professional life? What do you want your personal life to look like?

Wealth Strategies

Teachable Moments to Develop the Rising Generation One of CIBC Atlantic Trust’s three principles for a successful family legacy is to develop the rising generation. The best practices of providing a learning environment and encouraging opportunities for involvement are true participatory engagements— for the entire family. Wealth has many complexities, not the least of which is the responsibility to help support the next generation so they become good stewards of the family wealth. That may sound easier said than done, but it doesn’t have to be. The first step is to reflect on whether the time feels right to begin helping the younger adults learn about wealth and get involved. Sometimes a change in circumstances brings the recognition that the right time is now. “We were working with a family who had a significant change in the amount of their wealth because of a liquidity event,” says Joshua S. Miller, CFP®, managing director and senior wealth strategist for CIBC Atlantic Trust. “They were struggling a bit with the goal of wanting to share the information with their children and getting them involved in creating a legacy vision for the whole family. But they were very focused on figuring out how to be successful at developing their next generation to understand, receive, preserve and protect the family wealth. I believe that families will intuitively know when they’re ready to begin their in-depth discussions with the young adults.”

Those Teachable Moments A teachable moment is typically an unplanned—and often fleeting—opportunity that lends itself to passing along insight and wisdom. But teachable moments can be planned, especially when the “moment” is presented the right way.

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Wealth Strategies Use the word “workshop” with your young adult children and you might not get an enthusiastic reaction. But use the words “designing a vision for our future” and the reaction might be different. That’s exactly the purpose of the Family Road Map Workshop, a multi-generational gathering during which all family members participate in articulating a family wealth goal and developing a plan of action for it. “The Road Map Workshop is meant to bring a family together around a specific goal—for example, a multi-generation plan for strategic philanthropy. The basic premise of this workshop is that the family collectively designs a vision for the future goal they wish to achieve,” says Miller. “They define what ‘success’ looks like— What are we doing? What are our values? How do we make decisions? Without feeling like they are being ‘instructed,’ the younger family members will learn the important role they can play in helping implement the family’s vision.” Beyond the obvious value of the specific input from each family member is the intrinsic value of the process itself— “While the goal may change over time, the process of a family coming together to work on a vision is as important as the result,” says Miller. Part of the value of the process is for the older adults to have the opportunity to hear what the younger ones really think about things they may not have been fully expressive about in other settings. While it’s typically not a total surprise—and usually far from “I can’t believe you feel that way”—there can be some eye-opening moments. Miller says this can often be the case when a family does a Family Crest Workshop. The opportunity for the rising generation to articulate how they see the family’s values and pick a color that represents the family, an animal to represent core principles— Is it a falcon for leadership, a horse for readiness, an eagle for vigilance?—and a motto that summarizes what the family

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stands for—is often extremely revealing to the family. “Many times, there’s a very strong sense of pride and even wonder that the younger adults have thought through their answers so fully,” says Miller. “It’s my experience that these rising generation members do understand the purpose and the importance of the purpose. Their attitude is that this is their future, too.”

Acting Together as a Family To go further into a learning environment that engages and empowers the next generation, the Family Vision Retreat helps you create a story of the future for your family—a common vision that describes why it matters that you act together as a family and also supports the individual goals of your family members. But it’s not just the common vision that matters—it’s the courses of action to achieve the vision, actions on which all members of the family mutually agree. A Family Vision Retreat is based on the principles of scenario planning that were originally developed by the U.S. military and designed for flexible long-term planning. Its chief goals are to dissect and discuss novel insights about the future, shifts in values and unexpected events— all of which can be applied to and used by a family. After all, notes Miller, as each generation grows up, members of another family are brought in when children marry, which can potentially bring in a new set of values. “Every family needs to acknowledge that as it moves through the generational ladder, flexibility and adaptation are going to be required. Think of the family vision as a living document that will change over time. Often, the dialogue that is part of a Family Vision Retreat exercise can surface the real desires of a family when the family itself may not be able to articulate those things.”

Once you’ve discussed the family’s passions that will help create the vision, the plan for action can begin—and the next generation can take an active role. For example, a sound plan for strategic philanthropy suggests that you research what is already being done and what organizations may have programs in place that you can leverage. “Assign that research to the younger adults,” says Miller. “It will give them a feeling of ownership in what the family wants to do. And be sure to talk about what you’d like your charitable ‘project’ to look like when you’re no longer able to be involved, so that your rising generation sees the opportunity for continuing the commitment and taking it to the next level.” (Please view our “Strategic Philanthropy: Giving with Purpose” white paper for a more indepth discussion of this topic.) Develop the rising generation: Just like the other G2G principles of integrating planning for family wealth and evolving a healthy family wealth culture, it’s a process, a journey, a way of thinking in a long-term way about what “family wealth” really means. Taken together, all of the principles and the best practices that support them are ways to put the younger generation on the right course, put them in the best position to succeed once they do become stewards of the family wealth and put this vision front and center: It matters that we act together as a family. While families that go through these exercises are committed to both the process and the end result because they’re committed to being a successful family, there’s an added bonus, says Miller: “These multi-generational events can be downright fun.” Please ask your advisor for our complete G2G Legacy Planning white paper series and for more information on all of the tools, workshops and retreats available to help create your family legacy.



Taking Advantage of Delaware’s Trust Laws on Self-Settled Asset Protection Trusts Delaware has long been a jurisdiction of choice for grantors of trusts. For generations, Delaware has built a trust-friendly body of legislation. It has supported its laws with a knowledgeable and effective court structure, which has a developed system of case law supporting the favorable provisions that clients put in place with their Delaware estate planning. How can Delaware benefit client families? One way is through the ability to create a “self-settled trust” that can protect assets from claims by creditors. These Delaware Asset Protection Trusts (DAPTs) are allowed under Delaware law. “Delaware law permits an individual to create self-settled trusts and remain a beneficiary as long as they include specific provisions required under Delaware law. The DAPT can be useful for individuals involved in high-risk professions as it may protect the assets from a wide range of creditors. DAPTs are a powerful tool; however, as with any asset protection tool, they are not a panacea. Planning before creditors are on the horizon can be key to a successful asset protection strategy.” – Halsey O. Schreier, vice president and wealth strategist with CIBC Atlantic Trust


In many jurisdictions, individuals may not avoid the claims of creditors on assets they place in trust if they retain a beneficial interest. Delaware has enacted a Self-Settled Asset Protection Trust statute that permits a grantor to retain trust benefits and protect the assets in the trust from the claims of creditors.


Clients in high-risk professions, such as physicians or attorneys, or clients whose business presents potential individual liability, such as real estate developers.


- What do you do for a living? - Do you engage in any high-risk activities?

“A hybrid DAPT can be a good option for clients as an alternative to a traditional DAPT. The twist is that a trust protector named in the trust can be given the power to add or remove the grantor as a beneficiary. Often called a third-party trust, it is an asset protection trust, as once assets are transferred to the trust, the grantor has made a completed gift and can retain no control over the assets or distributions from the trust.” – Judith A. Saxe, AEP®, managing director and director of research and education for the Wealth Strategies Group with CIBC Atlantic Trust If you believe a Delaware Asset Protection Trust may benefit you and your family, please consult your legal and estate planning advisors.

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2017, Private Asset Management (PAM), “Best Investment Platform—Performance”: The detailed information provided by CIBC Atlantic Trust for the award included information on both internal and external strategies. Three firms were shortlisted for this award, and CIBC Atlantic Trust was the only firm to win. 2017, Private Asset Management (PAM), “Best Trusts and Estates Division”: Six firms were shortlisted for the Best Trusts and Estates Division award, and CIBC Atlantic Trust was the only firm to win. PAM annually invites firms to compete for awards in several categories that are reviewed by a panel of independent industry experts. PAM considers the following criteria when selecting the winners of these awards: • Financial progress: Candidates must be able to demonstrate performance track records over the course of the last 12 months. • Growth: Client numbers, internal hires and geographic expansion • Client satisfaction: Provide evidence of client satisfaction • Product innovation: Details of new services and products launched over the course of the year prior to the year the award is given. 2017, Family Wealth Report (FWR), “Private Client Investment Platform”: Five firms were shortlisted for this award, and CIBC Atlantic Trust was the only firm to win the award. The award recognizes investment platforms specializing in servicing the investment needs of the high net worth community. These awards and recognitions may name Atlantic Trust, which is now called CIBC Atlantic Trust Private Wealth Management. Any reference to a ranking, a rating or an award provides no guarantee of future performance results, and is not necessarily indicative of any particular client’s experience and is not constant over time. CIBC Atlantic Trust Private Wealth Management includes Atlantic Trust Company, N.A. (a limited-purpose national trust company), Atlantic Trust Company of Delaware (a Delaware limited-purpose trust company), and AT Investment Advisers, Inc. (a registered investment adviser), all of which are wholly-owned subsidiaries of Atlantic Trust Group, LLC. This document is intended for informational purposes only, and the material presented should not be construed as an offer or recommendation to buy or sell any security. Concepts expressed are current as of the date of this document only and may change without notice. Such concepts are the opinions of our investment professionals, many of whom are Chartered Financial Analyst® (CFA®) charterholders or CERTIFIED FINANCIAL PLANNER™ professionals. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S. There is no guarantee that these views will come to pass. Past performance does not guarantee future comparable results. The tax information contained herein is general and for informational purposes only. CIBC Atlantic Trust does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers. To the extent that information contained herein is derived from third-party sources, although we believe the sources to be reliable, we cannot guarantee their accuracy. The CIBC logo is a registered trademark of CIBC, used under license, and “Atlantic Trust” is a registered trademark of Atlantic Trust Group, LLC. Approved 993-17. Investment Products Offered are Not FDIC-Insured, May Lose Value and are Not Bank Guaranteed.

Q2 2017 The Advisor  
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