Dismantling Empires Can Be as Complex as Forging Them.

BUILDING a centimillion- or billion-dollar empire is no easy feat, but dismantling it in a responsible manner can present an even bigger obstacle course.

Today's wealthiest face some of their hardest hurdles when it comes to doling out their assets, whether it's in the stock of the company they helped build, a rare piece of artwork or prime real estate. They must assess tax ramifications, take care to protect family members' interests, consistently maximize the value of their holdings and, possibly most important of all, make sure the wealth finds its way to worthy causes in synch with the benefactor's philanthropic goals.

And just because they're wealthy doesn't mean they know how to do all those things.

"The biggest source of wealth is entrepreneurial," said Greg Sanford, president of the Western subsidiary of New York-based U.S. Trust Co. N.A. "When a wealth event happens, they're unprepared for new challenges of managing wealth because they've never done it. It's daunting."

So the wealthy entrust much of their estate plans to accountants, tax attorneys and consultants. While planning may only take about a year, the complexities that today's wealthy people must deal with are greater than they ever have been before.

Factor in divorces, re-marriages, non-marital relationships, changing tax laws and a competitiveness for wealth fueled by a growing rich population - and the process of giving away one's holdings can be a monumental task, said John Rogers Jr., a partner in the trust and estate litigation practice of Holland Knight LLP.

And changing demographics aren't making the process any easier, he said.

Because more and more of the wealthy are reaching a pinnacle at an earlier age, many are not as familiar as they should be about how to deal with their wealth, he said. Their priorities may also change as they get older, he added. And with advances in medicine, many wealthy people are living to an age at which their mental and physical ability to manage their fortune comes into question, Rogers said.

Taxing matters

At the same time, wealthy individuals must be aware of what effect taxes have on their holdings. In fact, taxes are usually what spur the wealthy to begin dispersing their assets in the first place - more so than their age or a major event, such as selling their company, Sanford said.

"You realize you're writing bigger and bigger checks for taxes, and it becomes more and more alarming," he said. "You look for intelligence and wisdom on how to deal with our increasing tax burden. Some of the reason for the philanthropy is a need and desire to give back. And some is because giving philanthropically has tax advantages."

For instance, if a wealthy individual holds stock or real estate that appreciated greatly during one particular year, the owner would typically be better off giving his or her beneficiary the asset directly, rather than selling it and giving the beneficiary the proceeds. Selling would require payment of a capital gains tax, whereas giving the asset away allows the individual to write off the entire appreciated market value of the asset as a donation on year-end taxes he said.

A popular tax tactic used by the wealthy is to sell partial assets over a long period of time, said Rick Wolf, managing director of Sotheby's Inc. in Beverly Hills, the oldest fine arts auction house in the world.

If a wealthy individual expects to pay $700,000 in income taxes for the year, for example, he could give away a portion of ownership in a $7 million (appraised value) Monet painting - say, 10 percent or so - that would enable him to write off the $700,000 on his income taxes as a donation, Wolf said. Many of the wealthy give partial stakes in various assets, too, if the recipient needs it before they have completed their estate planning, he said.

But giving away fortunes is not just about taxes.

Building a legacy

The first place the wealthy look to give away their holdings is the family. They want to build a legacy for later generations, who may not remember them that well or may have views that could differ from their original philanthropic focus, said Tony Oppenheimer, president of Oppenheimer Management and Consulting Associates, which works exclusively with the wealthy.

"With the attorney or the accountant, a lot of them do (estate planning) more textbook," said Oppenheimer, whose family recently split up his grandparents' Jules and Doris Stein Foundation into four separate foundations. "They don't understand that this is the heart and soul of the family. One of the things that happens is you have a dry document that saves taxes but doesn't accomplish the goal of philanthropy to help the community."

Oftentimes, a family legacy is a good way to pass down family values and get inheritors involved in the family's philanthropies, so they don't feel as removed from the original fortune-builder, said Oppenheimer.

His family's own Oppenheimer Brothers Foundation has a junior board of family members ages eight to 24, who are required to visit grant recipients and do community service before they can get to their own funds.

"A family legacy has a lot to do with getting the kids involved in a second or third generation," he said. "A lot of times the children of these people see them as bigger-than-life figures. They don't feel like they fit in regular society. But getting the next generation in at an early age, getting involved in grant making and accessing funds to give to their favorite charities, they learn about business. They learn about the community and sit in on investment meetings."

Educating the next generation also avoids a lot of conflict within the family that may occur later on, Rogers said.

And more so today than in years past, wealthy Angelenos are taking very seriously the process of dismantling their empires in a responsible manner.