After a 37-year career creating and growing international brands at the Alberto Culver Company, founded by her parents, executive chairman Carol Lavin Bernick negotiated the sale of the company to Unilever in 2011. Since then, she has led her family’s business office, Polished Nickel Capital Management. She discusses what she has learned about estate planning and what she teaches her children about wealth preservation:
How did you get started learning about estate planning?
My dad was very, very protective of all of our brands at Alberto Culver. He would be deep into the details with all of them. But he didn’t get into the massive number of details in his estate planning in any way. One day, when I was about 40 years old, he gave me his will and said, ‘Read it; see if it makes sense to you.’
Well, my mother had started the business with my dad and was very bright, and when I read the will, I realized that although she was one trustee, there were two attorneys — good friends of ours — who were also named trustees. And honestly, they would always be able to outvote my mom. They also had the right to name replacement trustees. So, I went back to my dad, and I said, ‘Do you realize mom can be outvoted, and that your lawyers can name future trustees?’ He said, ‘That’s impossible.’ I said, ‘It’s not impossible — it’s what the will says.’ Then I found a new law firm and I became more of an estate planning expert.
What practices have you incorporated to avoid issues like this?
One thing I have done since that day — other than change lawyers— is, with everything I do, I write an assumptions document before I ask anybody to write the real document. I do this whether it’s a charity, a brand I’m launching or a legal document. I want the assumptions agreed to first. It saves a massive amount of time to get everyone on the same page.
I also have our attorneys create a summary — signed by the attorney — attesting that the summary is exactly what the long legal document says. This way I can look at the one- or two-page summary and understand the 50-plus pages that are in the agreement. That’s been extremely helpful to me.
Another thing that I do — and now our lawyers utilize this with other clients— is I have something I call a chart book.
We have way too many trusts, but our lawyers assure us that each of them is necessary. Each page of the chart book shows us relevant information pertaining to such trusts, including the trust name, who is serving as trustee, who is named as successor trustee, the current and remainder beneficiaries, who has a power of appointment over said trust and when the trust terminates. Most of us do not understand all the legalese that’s in a trust agreement and having the summary document explain exactly who future beneficiaries are, when money can be distributed by the trustees, any restrictions on it and all the rest is extremely important and very, very helpful.
What types of trusts should people consider when working on estate planning?
GRAT trusts: We do a lot of GRAT planning, which stands for ‘grantor retained annuity trust.’ A GRAT is an irrevocable trust that pays the creator of the GRAT (the ‘grantor’ or ‘settlor’) annual annuity payments over a fixed trust term. When the fair market value of the property transferred to the GRAT equals the present value of the annuity returned to the grantor based on the assumed interest rates set by the Internal Revenue Service, then the grantor pays no gift tax as the GRAT has been ‘zeroed out.’ There are many other technical rules and reporting requirements with GRAT planning that should be reviewed with tax counsel and your accountants, but this planning has been very successful for my family, as any appreciation earned by the GRAT which exceeds the IRS assumed interest rate passes in further trust for my kids without additional gift tax consequences.
Since the 1990s, my family has been very active in GRAT planning, funding them with a wide variety of assets, including marketable securities. We look at the GRATs literally every two weeks, and we have six or seven of them going at all times. We do short-term GRATs — two years — because if I did not survive the GRAT, I lose the potential tax benefits of the GRAT.
When successful, the appreciation from the GRATs passes in further trust for my children. A trustee is authorized, but not required, to use trust assets for the benefit of my kids. Alternatively, the assets can be used to start a new business or own real estate for the benefit of my kids. If the property stays in further trust, it can be structured so I continue to pay the income taxes of such trust. That is hugely beneficial for my family.
Dynasty trusts: A number of years ago, I used a portion of my lifetime gift and generation-skipping transfer (GST) exemption when making gifts to irrevocable dynasty trusts for the benefit of my kids. It was at the time when the government was proposing to reduce the lifetime exemption. We have taken an aggressive, illiquid investment position on these funds and that money has markedly grown since we did that, as future generations shouldn’t need the money for decades. So, creating a dynasty trust, using your lifetime exemption — or as much of it as possible — is just a smart thing to do. This trust passes on tax-free, so hopefully it will exist for my great grandkids as well.
Revocable trusts: A revocable trust is exactly what it says. You can revoke it at any time. You can change it at any time, but should you pass away, your assets can be protected from creditors of your children if structured properly. Anything that’s in a revocable trust does not go to probate, and obviously probate can continue for a long time. Beneficiaries can get caught not having money to run their lives because a revocable trust was not established, and they have to wait for the courts to say it’s OK to access their family’s or loved one’s assets. When you put everything into a revocable trust, it takes it out of probate. Everyone should have a revocable trust that covers bank accounts, stocks, cars, homes, etc.
Education and medical exclusion: Certain transfers made directly to a medical provider (and not reimbursed by insurance) or higher educational institutions for tuition are not gifts under the tax code. My family uses this tax exception to help cover anybody’s education or anybody’s medical costs we so desire to assist.
How do you decide who controls these trusts?
I’ve never been a believer that a bank has the right to manage our money. It just is not something that I want to do.
When my children were younger, I created something I called protectors or trust advisers: a list of about 12 people that I trust. In order to access capital or to name their own trustee, my kids had to get three protectors to agree. So, I have 12 astute people — lawyers, businesspeople, accountants, and friends that I trust implicitly — and my kids know the people on this list. This structure serves as a speed bump for kids. As they have gotten older, they can add to the protector list with my approval. So, now they have some very dear friends who are very sharp on that list as well.
What have you learned about estate planning when extended family and friends are involved?
Older adults: One thing that I would tell anybody who has an older parent or relative is you want to demonstrate competence to change wills. Let’s say your parent is 84 and has cancer, and all of a sudden he or she worries about updating their will. Have the doctors send a note to their lawyers at that time stating they are fully capable of making these changes. Because what happens in so many families — and I’ve heard too many stories like this — is that people challenge the latest will, which is what the parent felt was most important, because the parent was sick at the time of writing it.
I learned a related lesson from a friend who was in the room with her elder parent when the parent changed a will. That’s a huge problem, because you could be accused of influencing that person, even if you did not. The mere presence of being in the room (if you are a beneficiary) can be construed in that way.
In-laws: My mother grew up food insecure, and my dad was barely middle class. They were wildly successful starting and growing Alberto Culver, and we kept the trajectory going amazingly well in my generation. But an important family value is: Love people for who they are, not what they have. And to this day that is a huge tenet of who we are.
Coincidentally or not, all three of my children married very, very fine people, without significant wealth. We did not try to make a merger of high-net-worth families or anything like that. They married lovely people — and I have told my children, since they were little, that their spouses would be asked to sign a prenup prior to marriage. In fact, in my will it says that my grandchildren will not benefit from any of the trusts unless they sign a prenup. This is never about the person. It’s just the standard practice of our family.
But one thing to consider is how to accommodate the financial needs for a spouse marrying into the family with a minimal net worth. Any estate plan should consider what happens when a child passes away and assets pass in further trust for grandchildren, leaving very little financial resources to a surviving spouse of a child.
Friends: I have several girlfriends and one guy friend who have been best friends of mine for no less than 30 years, and some for 55 years. Maybe 15 years ago, I had them in my will. Instead of making testamentary gifts, I am making annual exclusion gifts or using funds from excluded trusts to assist many of them. It has been so much fun to give it away now, so they can enjoy it. It is really fun to see: One person quit her job. Another person cut back to working three days a week. Another friend bought a vacation home.
Family vacation home: My favorite thing we own is a lakefront property with a dozen acres of land and two big houses. But vacation homes are a tough thing to own jointly. To help this process, you might consider allocating a portion of your funds (like an endowment) to provide funds to manage the property for as long as they own it. I also am so keen on this property that the kids have the right to sell their one-third of it — but they have to sell it to another family member at a discounted price as a way to encourage them not to sell. I do this because I want my grandkids to be able to use and enjoy this property for many years to come. We literally named the property “Welcome Home.”
What have you told your kids about your goals for the family’s wealth?
What I have always said to my kids, and have been very adamant about, is this: We were wildly successful. We worked our rears off. But this money is to last for as many generations as humanly possible. So, we will live well, we will travel well, we will have great educations. But my children know that my game is to pass down as much wealth as I can to future generations.
My kids know that any family wealth generated is not for their exclusive use. It is for the use of the family on a long-term basis. The encouragement is to never exhaust that money, because it is meant to go to their kids and their kids’ kids.
I teach: ‘Don’t eat the chicken.’ In other words, if you keep the chicken healthy (the principal) you will always have eggs (the interest). Maybe even an egg will hatch, and you have two chickens. Don’t touch the principal.
What values about money have you tried to transmit to your kids?
We all created our family values together.
One example that I think is extremely helpful for other people: I’m remarkably close to my kids. And yet when my son was setting up one of the private equity companies, he said, ‘Mom, we’ll create an LLC, so if something goes sour, we can walk away from it.’ And I said, ‘We will never stiff a bank.’ We will never walk away from debt. It’s not going to happen — it’s not who we are.
Our family reputation is extraordinarily strong. It takes a long time to build it up. And in a very short second, it can be torn down. People check you out, and your reputation gives you entry into other deals and opportunities. Talk often about your family values and model them through your actions. It’s very much a part of what we do and who we are.
We own a very significant horse farm. During COVID we qualified for government money to cover payroll. I refused that funding. Sure, we qualified completely, but we were not taking government funds.
How have you taught your children about money?
Each of my children had minimum wage or entry level jobs when they were younger — waitress, bank teller, store clerk, etc. It showed how hard it was to earn real money.
When my youngest child was 25, some funds were made available to them and I said, ‘You’re going to have a lot of money go through your hands in the next decades. What will you do with this money – invest it, save it, buy a house?’
It was interesting — my academically smartest kid, he blew it. He took a highflyer opportunity with something he was sure was going to work out. It did not. He lost the money. It was a huge and important lesson. He’s now our CIO, and he does a magnificent job. But that lesson was extremely important to learn early on in life.
How do you communicate with your children about wealth and estate planning?
I have shared many aspects of my estate plan with my children. My youngest is 40 and my oldest is 46 — they are all grown up. I want them to be able to plan their lives, knowing what will come to them in the future. I think that is really important. I think to surprise kids when you are gone at 80 or whatever age you may pass — it is just not right.
That said, I also have the right to change my will at any time. My brother died of a drug overdose and my sister has lived most of her life on a mountaintop, so you will understand that my purpose in life was always to raise kind, caring, competent kids who would grow into productive adults and add value to our communities. My kids are well aware that in my trusts, I have the ability to exclude a grandchild, should circumstances warrant it, say, if they had a serious drug addiction and refused help, as an example.
I’m also in business with all three of my kids — they’re all doing amazing things. One son runs a private equity fund, and he manages our family investments. My other son plays a big role in our foundations, and he oversees our thoroughbred racing business, which is very significant in the U.S. and overseas. My daughter used to be a teacher in Title I schools, and she is now the head of a water safety foundation that she created, helping to save lives of kids under 6 because drowning is still the No. 1 cause of accidental death in young kids. I couldn’t be prouder.
Please, feel free to borrow any of our examples. I hope they help.
Please note the information provided above is for educational purposes only and does not constitute legal advice.
