Transcript

Intro

Stephan Shipe: Welcome back to the Scholar Wealth Podcast.

Today we start with a listener question about what to do after realizing a significant capital gain and how to evaluate strategies like qualified opportunity zone investments without letting taxes drive the entire decision. Then we hear from a closely held business owner thinking about transferring future growth to the next generation, and when an IDGT can be a useful tool and when it can add unnecessary complexity.

We’ll also figure out what IDGT stands for, and we’ll wrap up with a conversation with Peter Hansen, founder of Sparrow Estate Management. We talk about staffing systems and how good home management is ultimately about giving families time back and letting them enjoy the lifestyle they’ve worked hard to build.

So let’s go ahead and jump in with question one.

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Question 1 – Qualified Opportunity Zones

Listener: I just sold a minority stake in a private business and realized about $2.3 million in long-term capital gains. I don’t need the cash right away, but I also don’t want to lock it all up because I’m afraid of taxes. What about a qualified opportunity zone fund to defer taxes and potentially reduce them for the long term?

Stephan Shipe: So when we jump into ideas like qualified opportunity zone funds, anytime I hear the word “fund,” I get a little nervous. And the reason for that is especially when it’s a fund tied to taxes. It’s really easy to jump in and look at tax incentives that are out there and just hope a fund will solve the problem.

On a macro level, we have to make sure the fund itself has the right characteristics. We’re looking for good management, a solid history, and a clear thesis for why this fund makes sense for this type of investment. Otherwise, you can end up in a situation where someone simply finds a qualified opportunity zone near them, puts money into it, and doesn’t really care about the underlying returns. They care more about collecting fees. That’s something we always need to be cautious about.

If we take a step back, the more important question is what are we actually investing in. That’s where most of the analysis should be focused, and it comes down to how taxes are used to influence behavior.

Taxes are often used to incentivize or disincentivize activity. If the goal is to discourage smoking, you raise taxes on cigarettes. If the goal is to encourage investment in low-income areas, you provide tax incentives. That’s exactly where qualified opportunity zones came from.

They were introduced in 2017 as part of the Tax Cuts and Jobs Act. The idea was to encourage investment in underserved areas using census data to designate opportunity zones. The incentive was that if you reinvest capital gains into one of these zones, you can defer those gains and potentially eliminate taxes on future appreciation.

In your case, you have $2.3 million in capital gains. You could reinvest that $2.3 million into a qualified opportunity zone, typically through a real estate investment, and defer the taxes until the property is sold or until 2026. Since that deadline is approaching quickly, the deferral aspect is no longer a major benefit. You might get a short deferral, but that’s not really the driver anymore.

The real benefit is the second part. Any growth on the money you invest into a qualified opportunity zone can be tax-free if you hold the investment for at least 10 years. That’s a very different conversation. Tax deferral is one thing. Tax elimination is another, and that’s what gets people interested.

The tradeoff is that these investments are inherently riskier. These are areas that are not fully developed, and you are part of that development. You’re required to make substantial improvements. You can’t just buy land, sit on it for 10 years, and walk away with tax-free gains. If you buy a building for $1 million, you generally need to put another $1 million into improving it.

The goal is that you improve the area, create economic activity, and stay invested long term. That 10-year holding requirement is intentional. It’s similar to deferred compensation or long-term incentive structures. The government wants you committed for the long haul.

If the investment performs well and you hold it for 10 years, the appreciation can be tax-free. That’s a meaningful benefit. But this is where people get into trouble. Anytime there’s a significant tax incentive, there’s a higher likelihood of poor investments being justified purely by the tax benefit.

There’s a reason the government has to incentivize investment in these areas. They’re harder places to invest. You may deal with construction issues, difficulty finding tenants, higher operating risks, and longer timelines. None of this is risk-free.

So the key is making sure the investment stands on its own merits. You should look at this the same way you’d evaluate any real estate deal. Does the pro forma make sense? Does the return justify the risk? If the answer is yes, then the tax benefit is simply a bonus.

Where people get into trouble is letting the tax incentive drive the decision. That often leads to poor outcomes.

This is similar to what we see with 1031 exchanges. A 1031 exchange defers taxes, but it doesn’t eliminate them. You sell a property, roll the gains into another property, and push the tax bill down the road.

Qualified opportunity zones are different. If structured and held properly, the appreciation can be eliminated entirely from taxation. That’s why they often come up in the same conversations, but they work very differently.

One other important distinction is that qualified opportunity zone investments don’t require the gain to come from real estate. It can be from selling a business, stock, or another asset, which makes them flexible.

They can be very attractive in the right situation, but only if the investment itself makes sense. The tax benefit should never be the sole reason for doing the deal.

And with that, we can move on to the next question.

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Question 2 – IDGTs

Listener: I recently invested in a very specialized piece of equipment for my business, a sleigh used exclusively for deliveries. How should I think about depreciation for something like that?

Stephan Shipe: This is up there with one of the most ChatGPT-style recommendations you’ll get in these more obscure planning areas. And it could work.

We can talk about when it could work and when it wouldn’t, but there are a lot of hooks here. You have to be very careful with these types of trusts, not only because of valuation concerns and complexity, but because anytime we’re talking about an irrevocable trust where you’re giving up assets, you need to be absolutely sure you won’t need those assets in the future.

Once you give them up, especially in a situation where the assets are appreciating quickly, they’re no longer yours. From an estate planning perspective, that’s great. If we can move assets and their future growth out of your estate and into your kids’ estate, you avoid estate taxes on all that appreciation. But the tradeoff is that you can’t take it back later if you need it.

The first thing we need to do is explain how this actually works, because it’s not intuitive. It’s a bit of a shell game where you’re following cash flows carefully to make sure everything lines up.

The concept is that you have a highly appreciating asset, in this case your business. Let’s use round numbers. Say your business is worth $10 million today. You transfer that $10 million business interest into an intentionally defective grantor trust.

That transfer uses up part of your lifetime exemption. When you do this, valuation discounts usually apply. You don’t want to be aggressive here, and this is where coordination with your CPA and attorney matters. But valuation discounts are common because the trust typically receives non-voting interests and lacks liquidity.

So now the trust owns the business interest, but you retain control. The trust doesn’t have voting rights and can’t easily sell the asset. That supports both a minority discount and a lack-of-marketability discount.

Here’s the key part. You don’t just give the asset away. The trust issues you a promissory note in exchange for the business interest. So instead of owning the business, you now own a note worth $10 million that the trust owes you.

For tax purposes, this isn’t treated as a taxable sale because the trust is considered you for income tax purposes. That’s the “defective” part of the intentionally defective grantor trust.

Now let’s talk about growth. Suppose the business grows from $10 million to $50 million. That $40 million of appreciation happens inside the trust. That growth is no longer in your estate. It belongs to your heirs.

You still have the $10 million note. The trust has to pay you back, typically at the applicable federal rate, or AFR. Let’s say that’s 5 percent. So the trust owes you interest payments on that note every year.

What you’re effectively doing is swapping unlimited upside for a fixed return. If the business explodes in value, you’re thrilled you did this. A 5 percent note is nothing compared to the growth that moved out of your estate.

But there are tradeoffs. The business now needs to generate enough cash flow to service that note. Let’s say the business generates $1.5 million a year. If $600,000 goes toward the note payments, that leaves $900,000 inside the trust.

Here’s where people get uncomfortable. You still pay the income tax on that $900,000, even though you don’t receive it. That’s intentional. By paying the tax yourself, you’re effectively making an additional tax-free gift to the trust every year, allowing more assets to compound for your heirs.

For this to work, you need to be comfortable living on the note payments and other assets you own personally. You also need enough liquidity outside the business to pay the taxes every year.

These structures work best when you have a rapidly appreciating asset and sufficient assets outside of it. You’re giving up the income and growth from the business in exchange for estate tax efficiency.

Where things get tricky is when the assumptions don’t hold. If the business doesn’t grow as expected, or if cash flow tightens, the trust may struggle to service the note. If you personally need more income than the note provides, you’re stuck.

These structures are very difficult to unwind once they’re in place. There are provisions that can allow asset substitutions if they’re drafted correctly, but that adds another layer of complexity and administration.

For example, if the trust accumulates significant cash over time, and you personally own highly appreciated assets you don’t want to sell, you may be able to swap assets with the trust. But now you’re deep into advanced planning territory, and everything has to be documented and coordinated properly.

Another risk is success. If the business grows far more than expected and starts generating $10 or $20 million a year, you could find yourself paying taxes on very large amounts of income that you don’t personally receive. That can be a good problem, but it still has to be planned for.

You also need to think carefully about how the note is structured. An interest-only note can reduce pressure on the business, but it also reduces the cash flow you receive personally. Every design decision creates a tradeoff somewhere else.

This is why IDGTs often look fantastic at first glance and then get more complicated the deeper you go. On paper, it sounds like the perfect solution. In reality, you need to model the “what if” scenarios carefully.

What if the business grows much faster than expected? What if it grows more slowly? What if you need liquidity later? What happens if valuation discounts are challenged? What happens if your personal spending needs change?

This is a great example of where AI can surface an idea, but it can’t tell you whether it’s right for you. Implementing something like this requires close coordination between your estate planning attorney, your CPA, and your financial advisor to make sure the structure fits your life, not just the tax code.

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From the Field – Peter Hansen, Sparrow Estate Management

Stephan Shipe: And for today’s From the Field segment, we explore how staffing, documentation, and proactive systems help homes run smoothly, especially for families managing multiple residences.

Today we’re joined by Peter Hansen, founder of Sparrow Estate Management, a firm that helps families run their estates with the same precision and service you’d expect from a five-star hotel. Peter brings two decades of luxury hospitality experience from leading properties in both New York and Los Angeles, and he now applies that expertise to private households, overseeing staffing systems and operations across single- and multi-residence estates.

Peter, welcome to the Scholar Wealth Podcast. To start, why don’t you tell us a little bit about yourself, your background, and how you got into this work?

Peter Hansen: Thanks so much for having me. I’m happy to be here today, and thank you for the introduction. My name is Peter Hansen. I’m one of the founders of Sparrow Estate Management.

We’re a Los Angeles–based private staffing company and home management service provider. I started in hospitality and have spent more than 20 years working in luxury hotels and fine dining restaurants in New York and Los Angeles. In 2020, I founded Sparrow Estate Management together with my wife and my brother-in-law.

We initially set out to be a hospitality staffing agency providing staff for restaurants and hotels here in LA. We then had an opportunity to pivot into the private sector. We found a lot of synergy between hospitality-minded service and private households, and there was significant demand for what we could offer.

Stephan Shipe: When someone talks about estate management, what does that actually look like in practice? What’s the difference between well-run estate management and situations where someone thinks they have it, but it’s really not functioning that way?

Peter Hansen: Sure. First, let’s talk about the word “estate.” We use it often, but it’s really about elevated homes. These are homes owned by clients who have worked extremely hard to achieve their lifestyle and now need support to maintain it.

Many of these homes have commercial-grade appliances and equipment, advanced smart-home systems, and complex infrastructure. Managing them can be a full-time job. Clients want to enjoy the lifestyle they’ve built, not manage it day to day.

They may have demanding work schedules, extensive travel, and multiple properties. They need staff. That could mean cooks, housekeepers, drivers, nannies, or other support roles. Strong operations and good management help deliver all of that smoothly.

Good estate management starts with clear communication, clear standards, and strong organization. Poorly run homes tend to be reactive. Everything becomes a fire drill. Expectations aren’t clear, and problems are handled after the fact instead of proactively. Those differences are critical.

Stephan Shipe: When you’re building out a team to manage a home, how do you think about sequencing? What are the first roles you typically fill, and how does that evolve? You mentioned smart home systems and security earlier, which almost sounds more like a tech role than traditional household staff.

Peter Hansen: That’s a great point. Many of these households already have strong relationships with IT teams or A/V providers. Our goal is to make sure clients don’t have to figure out how to operate their own homes.

We want the experience to feel effortless. When it comes to staffing, we usually start with housekeeping. That’s consistently the greatest demand. Culinary staff is also very common. From there, staffing expands based on the household’s needs.

There’s also strong demand for nannies, companion care, and personal assistants. For maintenance and systems, estate managers typically work closely with vetted vendors. These vendors handle routine and preventative maintenance, scheduled in advance and tracked on a calendar.

By keeping those vendor relationships close and proactive, we can resolve issues before they affect the client’s lifestyle.

Stephan Shipe: How should families think about the financial side of this? Compensation, expectations, and long-term budgeting. You mentioned being proactive, which means having systems and people in place before something breaks.

Peter Hansen: Absolutely. On the staffing side, one of the first decisions is whether a household self-employs staff or works with an agency like ours that handles long-term management, HR, and employer responsibilities.

If a homeowner directly employs staff, they need to be comfortable wearing the HR hat in their own home. That’s a big consideration. You have to think about whether you have enough staff to support your lifestyle without burning people out, whether schedules are sustainable, and whether compensation packages are competitive enough to avoid turnover.

Beyond salary, there are benefits, ancillary costs, travel expenses, and compliance considerations. All of that requires time, planning, and experience. Investing upfront in the right structure often saves families time, stress, and money over the long term.

Peter Hansen: On the maintenance side, if you don’t take the time to really understand all of the care and proactive maintenance that your property needs, it can cost you a lot of money and unwanted stress over time. You may go from maintaining certain systems to having to replace those systems entirely because things are breaking down, falling apart, or simply weren’t kept up to standard.

Stephan Shipe: How does that work from a logistics perspective? One thing that often comes up when people start thinking about hiring staff is payments and taxes. They immediately start worrying about things like needing an EIN, payroll, and tax filings.

Are these people employed by you and sent out as a service, or are they paid directly by the homeowners and you’re just staffing them? If I hire a staff of three for my home, should I expect that I now need to provide benefits and file tax returns at the end of the year? That’s usually the most intimidating factor that comes up.

Peter Hansen: For sure. And in addition to that, you now have staff working in your home alongside your family, which is another big adjustment.

At Sparrow Estate Management, we operate a little differently than traditional staffing agencies. We stay involved in the management of our employees for the entire duration of their employment. From the beginning, we follow best-practice standards for interviewing and vetting candidates to ensure they’re the right fit for the environment they’re entering.

We handle background checks, onboarding, payroll, benefits, general liability, workers’ compensation, and everything that goes along with that. Our clients don’t have to worry about scheduling, payroll, or HR issues. All of that is handled by Sparrow.

Stephan Shipe: You mentioned that you operate differently from other estate management models. When someone comes to you with an existing setup or nothing in place at all, what are the common gaps you see? What are the low-hanging fruit where you look at it and think, we see this all the time, and we’re going to start with A, B, and C?

Peter Hansen: Sure. We talk about time a lot in our company, specifically giving time back to our clients. That’s something clients tend to feel almost immediately, usually within the first couple of months of working with us. They often say, “How did I do this without you before?”

There’s a significant amount of time required to be a good employer and to build a strong culture and community for staff. There’s also a lot of time involved in managing a property. With the right systems and processes in place, many of those problem areas can be cleaned up quickly.

We also focus on reframing problems. Instead of seeing them as issues, we look for creative solutions. A lot of that comes down to planning and organization. One of our big goals is learning our clients’ behaviors and travel schedules. We look at when the home is vacant and when we have the best opportunity to handle larger projects without impacting daily life.

For example, when you call a vendor yourself, you often get a service window like 8:00 a.m. to 2:00 p.m., which means you’re stuck at home all day. Sparrow handles all of that. If a family is away for a holiday break, summer break, or spring break, we’ll stack vendors during that time. We schedule deep cleanings, extermination, plumbing, HVAC, and other annual maintenance so that when the family returns, everything is running smoothly and they’re not disrupted.

Stephan Shipe: Does that become even more important when someone has multiple residences? Especially if different family members are using different properties at the same time. Does it just turn into a more complex scheduling exercise?

Peter Hansen: I think you’ve got to get really comfortable in this space not committing to a set schedule. It’s important to remember that the client is the lead here, right? You’ve got to adapt around the client’s lifestyle. As much as you plan for an event or a travel schedule, you also have to be very comfortable with the idea that things can change.

Plans change. Someone may stay longer on vacation or redirect to another property. You’ve got to be totally comfortable changing hats, shifting gears, and moving teams around and saying, “Okay, great. Let’s pivot and go into this gear.”

You can have a lot of success with multiple properties as long as you have strong systems. You’re essentially adapting the same systems across those properties. That’s really the key.

The next level is ensuring that the service standard at every property is the same. My lifestyle feels the same. My culinary program feels the same. Cleaning standards are the same. Maintenance is the same. There are batteries in my remote control when I get to New York. All the little things you think about and strive for.

Stephan Shipe: I read once about similar property management setups where one of the biggest challenges was coordination between properties, even down to making sure the sheets were the same at every house or the nightstand was organized the same way.

That way, if I roll over in bed, regardless of which house I’m in, everything feels familiar. Are you getting down to that granular level? And what does the process look like to actually capture that level of personalization? I imagine it’s not a single form — or maybe it is. Maybe you have the magic form that captures everything someone would want in a home.

Peter Hansen: For sure. This is very client-driven. We try to learn as much as we can about the client and how much they want us to curate the experience. Everything you mentioned is part of this.

It can get very granular. Each department can have its own standards. Many clients at this level want that familiarity. They want their homes to feel like home no matter what state they’re in.

If it’s part of the program, we might even have an iPad that lives in the house. Every inch of the property is documented as a lookbook for service teams, estate managers, and housekeepers — down to refrigerators and how they’re stocked daily.

The nightstand example is spot on. You come home late from travel, walk into your bedroom, and everything is exactly how you expect it. That ease and familiarity matter. People are hitting the ground running — taking meetings, working hard — and having that consistency at home is very important.

Stephan Shipe: Tell me more about the lookbook. Is this similar to how retailers or restaurants ensure consistency across locations?

Peter Hansen: One hundred percent. Just like a chef uses mise en place or a dining room has standardized table settings, it’s the same concept. That can apply to how sheets are folded, how supply closets are stocked, how bars are set up, where pillows go, how they’re arranged.

It’s also a powerful communication tool when you have multiple teams throughout the day. Some teams start very early before clients are awake, so handoffs matter. Clear documentation prevents surprises. As we always say, great communication removes the element of surprise.

Stephan Shipe: Once all of this is pulled together — staffing, systems, documentation — how should someone think about compensation? If someone listening says, “This sounds incredible,” what are the typical structures? Is it staff cost plus a management fee, like property management, or something else?

Peter Hansen: On the management side, many companies work with monthly retainers or management fees. Some retainers are based on hours allocated to the property. We’re seeing more interest in fractional property management — maybe a home doesn’t need a full-time estate manager, but wants access to one part-time or during key periods like extended travel.

Those models vary. On the staffing side, recruiters often charge fees based on a percentage of annual compensation. Staffing agencies can be similar. For us, staffing is based on hours worked, subject to local labor laws. We’re very transparent, and management fees are included.

Stephan Shipe: Confidentiality and culture fit are huge. It’s not just about payment — someone is now inside your home. How do you ensure you’re bringing in the right people?

Peter Hansen: It comes back to best practices. We work closely with our HR partners to maintain strong vetting standards. We clearly understand the role expectations from clients and tailor our recruiting approach accordingly.

All Sparrow employees are W-2 employees. We conduct background checks, use E-Verify, and take onboarding seriously. We understand the discretion, reliability, and decorum required in these environments. As the ongoing employment manager, we guide staff through that initial period so they understand how to perform successfully in private homes.

Stephan Shipe: Before we wrap up, are there any trends families should be aware of in luxury home staffing or estate management?

Peter Hansen: There’s a growing expectation around technology and documentation. The old red binder with appliance manuals is being replaced by digital inventories. There are now client-facing apps that aren’t intimidating but give families visibility into their homes.

This is especially helpful in remote or emergency situations. We’ve also seen contractors video entire homes during construction so plumbing and electrical lines are documented before walls go up. Those resources are invaluable.

Proactive home care is becoming the norm because systems are so advanced. Clients don’t want to know how their homes work — they want everything to function seamlessly so they can enjoy the lifestyle they’ve built.

There’s also growing demand for hospitality-minded staff. Many of our managers come from hospitality backgrounds. Our goal is to make clients feel like clients. Service, discretion, reliability, calm under pressure, and pride in work are all increasingly important.

Stephan Shipe: That really ties everything together, from initial setup to ongoing service across one or multiple homes. Peter, thank you so much for joining us and sharing your insights.

Peter Hansen: Thank you for having me. It’s been a pleasure.

Outro

Stephan Shipe: And that’s our show. Thanks for listening. New episodes come out every Monday, so be sure to subscribe and turn on alerts so you never miss an episode.

See you next week.

Disclaimer: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.