What Hedge Fund Managers Need to Know About Year-End Tax Mitigating Strategies

Because hedge fund managers are almost invariably tasked with understanding and executing sophisticated investment strategies on behalf of investors, the assumption might be that they need less assistance in assessing personal income and other tax strategies.  However, experience does not bear this assumption out.  Managers are often so focused on fiduciary, operational and compliance responsibilities that their own family wealth strategy is comparatively neglected.  A robust family wealth strategy covers at least wealth creation, tax planning, asset protection, generational transfer and charitable initiatives; sustainable wealth creation is limited without the other components of a well-developed strategy.  Accordingly, in a guest article, Alan S. Kufeld, partner at Flynn Family Office, highlights some of the pillars of a well-developed strategy for hedge fund managers, focusing specifically on those most relevant to year-end tax planning.  In particular, Kufeld’s article discusses the minimum viable tax planning horizon; gifting of a “vertical slice” of fund interests; trust and estate structuring and planning; structuring around the 3.8% Medicare surtax; use of insurance structures to mitigate tax; the looming requirement to repatriate previously deferred compensation; charitable activities; and the role of family offices in perpetuating wealth generated from hedge fund activities.  See “Tax Efficient Hedge Fund Structuring in Anticipation of the New 3.8% Surtax on Net Investment Income and Proposals to Limit Individuals’ Tax Deductions,” Hedge Fund Law Report, Vol. 5, No. 40 (Oct. 18, 2012).

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