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CNBC WEALTH EDITOR

Wealthy families rush to give money to their kids, Rupert Murdoch heads to court against his kids, and family offices shop for the best countries to call home.

If you ask a wealth advisor what today’s high-net-worth investors worry about most, they would most likely say “their kids.” Wealthy parents are wondering: How much money should they inherit? How can we prevent them from being spoiled? How can we educate them about investing and financial planning? How can we prevent money from dividing the family?

Ideally, families can answer these questions over time. But this week, I take a look at an unusual confluence of events, including the tax code and the shifting presidential campaign, that has spurred wealthy families to give millions of dollars to their kids earlier than planned. The instant wealth transfer is already rippling through wealth management, family offices, real estate and the luxury economy.

I also look at the Murdoch family feud that’s about to kick off in an obscure Reno courtroom and the amenities that the wealthy really want in new luxury condos.

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Credit: Roger Diaz Gomez | Getty Images

The tightening presidential race has touched off a wave of tax planning by ultra-wealthy investors, especially given fears of a higher estate tax, according to advisors and tax attorneys.

The scheduled “sunset” of a generous provision in the estate tax next year has taken on new urgency as the odds of a divided government or Democratic president have increased, tax experts say. Under current law, individuals can transfer up to $13.61 million (and couples can send up to $27.22 million) to family members or beneficiaries without owing estate or gift taxes.

The benefit is scheduled to expire at the end of 2025 along with the other individual provisions of the 2017 Tax Cuts and Jobs Act. If it expires, the estate and gift tax exemption will fall by about half. Individuals will only be able to gift about $6 million to $7 million, and that rises to $12 million to $14 million for couples. Any assets transferred above those amounts will be subject to the 40% transfer tax.

Wealth advisors and tax attorneys said expectations of a Republican sweep in the first half of the year led many wealthy Americans to take a wait-and-see approach, since former President Donald Trump wants to extend the 2017 tax cuts for individuals.

Vice President Kamala Harris has advocated higher taxes for those those making more than $400,000.

With Harris and Trump essentially tied in the polls, the odds have increased that the estate tax benefits will expire — either through gridlock or tax hikes.

“There is a little increased urgency now,” said Pam Lucina, chief fiduciary officer for Northern Trust and head of its Trust & Advisory Practice. “Some people have been holding off until now.”

The sunset of the exemption, and the response by the wealthy, has broad ripple effects on inheritances and the trillions of dollars set to pass from older to younger generations in the coming years. More than $84 trillion is expected to be transferred to younger generations in the coming decades and the estate tax “cliff” is set to accelerate many of those gifts this year and next.

The biggest question facing wealthy families is how much to give, and when, in advance of any estate-tax change. If they do nothing, and the estate exemption drops, they risk owing taxes on estates on estates over $14 million if they die. On the other hand, if they give away the maximum now, and the estate tax provisions are extended, they may wind up with “givers’ remorse” — which comes when donors gave away money unnecessarily due to fears of tax changes that never happened.

“With givers’ remorse, we want to make sure clients look at the different scenarios,” Lucina said. “Will they need a lifestyle change? If it’s an irrevocable gift, can they afford it?”

Advisors say clients should make sure their gift decisions are driven as much by family dynamics and personalities as they are by taxes. While giving the maximum of $27.22 million may make sense today from a tax perspective, it may not always make sense from a family perspective.

“The first thing we do is separate out those individuals who were going to make the gift anyway from those who have never done it and are only motivated to do it now because of the sunset,” said Mark Parthemer, chief wealth strategist and regional director of Florida for Glenmede. “While it may be a once-in-a-lifetime opportunity as it relates to the exemption, it’s not the only thing. We want individuals to have peace of mind regardless of how it plays out.”

Perthemer said today’s wealthy parents and grandparents need to make sure they are psychologically comfortable making large gifts.

“They’re asking ‘What if I live so long I outlive my money,’” Parthemer said. “We can do the math and figure out what makes sense. But there is also a psychological component to that. As people age, a lot of us become more concerned about our financial independence, regardless of whether the math tells us we’re independent or not.”

Some families may also fear their kids aren’t ready for such large amounts. Wealthy families who planned to make big gifts years from now are feeling pressure from the tax change to go ahead with it now.

“Especially with families with younger children, a primary concern is having donors’ remorse,” said Ann Bjerke, head of the advanced planning group at UBS.

Advisors say families can structure their gifts to be flexible — gifting to a spouse first, for instance, before it goes to the kids. Or setting up trusts that trickle out the money over time and reduce the changes of “sudden wealth syndrome” for kids.

For families that plan to take advantage of the estate-tax window, however, the time is now. It can take months to draft and file transfers. During a similar tax cliff in 2010, so many families rushed to process gifts and set up trusts that attorneys became overwhelmed and many clients were left stranded. Advisors say today’s gifters face the same risk if they wait until after the election.

“We’re already seeing some attorneys start to turn away new clients,” Lucina said.

Another risk with rushing is trouble with the IRS. Parthemer said the IRS recently unwound a strategy used by one couple, where the husband used his exemption to gift his kids money and gave his wife funds to regift using her own exemption. “Both gifts were attributed to the wealthy spouse, triggering a gift tax,” he said. “You need to have time to measure twice and cut once, as they say.”

While the wealthy are also calling their advisors and tax attorneys about other tax proposals in the campaign — from higher capital gains and corporate taxes to taxing unrealized gains — the estate tax sunset is far and away the most pressing and likely change.

“In the past month, inquiries have accelerated over the [estate exemption],” Bjerke said. “A lot of people were sitting on the sidelines waiting to implement their wealth-planning strategies. Now, more people are executing.”

Old Town Zurich view of city with St. Peter's Church clock tower and the Limmat River. Credit: watcharit praihirun | Getty Images

As the ultra-wealthy become more global, with family members and investments spread around the world, family offices are also venturing abroad.

According to a recent survey from Deloitte, 28% of family offices now have multiple branches. Larger family offices, with assets over $1 billion, are the most expansive, with 40% having multiple branches.

Most family office expansions take place within their home countries. A large New York family office, for instance, might have a Los Angeles office to serve the LA-based branch of the family. But some family offices are venturing abroad. According to the Deloitte survey, 40% of Asian family offices have launched branches in North America and Europe.

The growth of the global family office has led to growing competition among countries to win their business. And family offices are searching for the ideal homes for investment opportunities, asset growth and skilled staff. So where are they landing?

According to a new white paper from Citi Private Bank, four of the most common locations for family offices today include the U.S., the U.K., Switzerland and Singapore.

The U.S., according to the report, is attractive for its stable financial, political and economic systems. (Assuming, perhaps, political stability is all relative.) It also benefits from its large population of high-net-worth individuals, top private schools and universities, liquid financial markets and skilled workforce.

The U.K. has similarly stable economic and political systems, liquid markets and rule of law, along with vibrant cultural activities and ease of travel to Europe, according to the report.

Switzerland, it notes, is clean, with good health care and strong legal system and property rights. And Singapore is a convenient global travel hub and has a strong education system and strong legal system and staff, according to Citi.

Of course, taxes and regulation also likely play a strong role. And when it comes to broader wealth and asset centers, Citi cites Jersey (Channel Islands), Luxembourg, Monaco, Hong Kong, the Bahamas and Dubai as highly attractive.

“In many instances, asset location is the same as where the owners live and work,” the report said. “However, depending upon one’s home jurisdiction, having assets located in one or more other countries may potentially provide greater safety, privacy, and diversification.”

Lachlan Murdoch, chief executive officer of Fox Corporation and co-chairman of News Corp, attends the annual Allen & Company Sun Valley Conference, July 11, 2019 in Sun Valley, Idaho. Credit: Drew Angerer | Getty Images News | Getty Images

A small courtroom in Reno will become the unlikely stage for one of the most important succession battles in media: the Murdoch family’s fight over control of their News Corp and Fox empire.

Next week, a series of evidentiary hearings are set to begin in Washoe County probate court in Reno. At the center of the case is Rupert Murdoch’s legal battle against three of his children, with Murdoch seeking changes to a family trust that holds voting control over News Corp and Fox Corp.

The irrevocable trust, created in 1999, gives Murdoch’s four children equal votes in the trust after his death. Murdoch, according to the New York Times, now wants to amend the trust to give his son Lachlan “permanent and exclusive” control of the trust.

The move is being contested by Rupert Murdoch’s other three children: James, Elisabeth and Prudence. In court, Murdoch will have to prove that he is acting in good faith and for the “sole benefit of the heirs.”

Why Nevada? As Inside Wealth reported last month, Nevada has become the top state in the country for asset protection trusts like Murdoch’s. In the arms race by states to become havens for the more than $5.6 trillion in wealth held in trusts, Nevada has continued to lead the way with no taxes, strong privacy protections and flexibility. Its strict confidentiality laws protecting trusts will ensure the Murdoch battle remains secret, despite several news organizations requesting to make the proceedings public.

Nevada trust law also favors Murdoch. While changing irrevocable trusts — which by nature are supposed to be permanent — is difficult in many states, in Nevada it’s fairly common. Nevada allows a practice known as “decanting,” essentially transferring the assets of one trust into a new one.

Murdoch’s three children will argue the move is an unfair power grab, while Murdoch will argue that consolidating the trust under Lachlan will be in all the family’s best long-term financial interest.

The outcome could have big implications for the owner of Fox News, the Wall Street Journal, The New York Post, the Times of London and other assets. And it may also remain Nevada’s secret — at least for now.

Related Companies/Oxford Properties Group and Wynn Resorts' rendering proposal for the $12 billion Hudson Yards West project. Credit: Related Companies and Wynn Resorts

When the super-tall condo towers on Manhattan’s “Billionaires’ Row” started opening a decade ago, many touted the hottest new amenity: private restaurants.

432 Park Avenue featured a private restaurant led by Michelin-star chef Shaun Hergatt, with a $32 bagel, a $110 filet mignon and a 5,000 square-foot terrace. At 220 Central Park South, home to Sting, Ken Griffin and Daniel Och, celebrity chef Jean-Georges Vongerichten announced a 54-seat, residents-only restaurant on the second floor. Soon, luxury towers throughout Manhattan followed suit.

It was supposed to be the ultimate food pairing: the best chefs with ultimate privacy, haute cuisine without the hoi polloi. As it turns out, some of the private restaurants were too private — even for the elite.

“It’s possible to be so exclusive no one goes there,” said Jeff Blau, CEO of Related Companies, the developer of Hudson Yards and other luxury towers across the country. “If a space is too private, it becomes boring.”

Related is constantly researching and testing amenities that will attract the wealthy to its luxury buildings. It’s found that spaces that aren’t well “programmed” — with activities or events or services — become “dead spaces.”

When it comes to restaurants, the wealthy like places that “are exciting,” with a buzzy crowd and people-watching, rather than an isolated dining room seated next to your neighbor, Related says.

Blau also said building pools can’t just be pools, but that they need food and beverage service to draw a crowd.

“Food and beverage service is everything,” he said.

The other big draw for today’s wealthy condo buyers is health and wellness. Related, which owns the Equinox fitness chain, said gyms in its building need to be high-quality and have training programs and classes. “You need people in the fitness club, actually helping people through their workouts, keeping it clean and well-managed,” Blau said.

Related just announced its latest mega-project in Manhattan, a 1,200 foot-high super-tall on Madison Avenue that will house luxury condos, stores and possibly a hotel and other features.

“We haven’t announced the programming yet,” Blau said. But if it has a restaurant, chances are, it won’t be boring.

• Richemont CEO Johann Rupert said luxury watches have “gone past the boom” and production should fall.

• Private equity billionaire and Apollo founder Leon Black launches an Abu Dhabi branch of his family office, Elysium.

• How to tell the truly wealthy from the “fake rich” on social media. 

• Wealthy Americans are driving up the price of beach homes in Portugal.

• The Chinese wealthy are buying foreign companies to move money out of the country.

• The seller of a $79 million Miami mansion is suing Douglas Elliman saying they didn’t tell him Jeff Bezos was the buyer.

• Selena Gomez is now a billionaire.

• An Apple-1 Computer that came from the desk of Steve Jobs sold at Christie’s for a record $945,000.

An early Apple-1 personal computer that sold for $945,000 Credit: Crystal Lau | CNBC

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