Florida Banking March 2024

THE MAGAZINE OF THE FLORIDA BANKERS ASSOCIATION WWW.FLORIDABANKERS.COM SEPTEMBER 2020 ServisFirst Bank: Closely Connected to its Communities THTHE EMMAGAAGZAIZNIENOE FOTFHTEHFELOFLROIDRAIDBAABNAKNERKSERAS SAOSCSOIACTIOATNION WWW.FLORIDABANKERS.COM SEPTEMBER 2020 WWW.FLORIDABANKERS.COM MARCH 2024

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JUNE ̩̮ ΅̩̱

TH ANNUAL MEETING THE BREAKERS | PALM BEACH, FLORIDA Visit our website for the most current program information and event announcements: www.FloridaBankers.com/AnnualMeeting

REGISTER TODAY!

Editorial & Executive Offices 1001 Thomasville Road, Suite 201 Tallahassee, FL 32303 850-224-2265 www.floridabankers.com Advertising & Production Offices 250 Prairie Center Dr., Ste. 300 Eden Prairie, MN 55344 952-835-2275 www.nfrcom.com For advertising information, contact Erica Nelson Advertising Sales Executive 763-497-1778 Erica@NFRcom.com For reprints or single issues, contact 800-336-1120 Statements of fact and opinion are made on the responsibility of the authors alone and do not imply an opinion or endorsement on the part of the officers or members of FBA. Florida Banking is published 11 times annually with a combined issue in December/January. Subscription price is $50 per year for nonmembers. Postmaster, send address changes to Florida Bankers Association, P.O. Box 1360, Tallahassee, FL 32302. Copyright 2024 Kathy Kraninger President and Chief Executive Officer Florida Bankers Association kkraninger@floridabankers.com Pamela Ricco Executive Vice President and Chief Operating Officer A

THE MAGAZINE OF THE FLORIDA BANKERS ASSOCIATION

VOLUME 39

NUMBER 2 MARCH 2024

ON THE COVER 8 - - - - - - - - - ServisFirst Bank:

Closely Connected to its Communities

CONTENTS 4 - - - - - - - - Chair’s Message: Join us in Palm Beach in June 6 - - - - President's Perspective: Spring Update: Recent Engagement With The Florida Delegation In Washington D.c. 12 - - - - Government Relations: Thank You to Our 2024 BankPac Board of Directors 13 - - - - - Basel III Hurts Banks, Businesses and Individuals 14 - BancServ Endorsed Partner: Give Work a Workout 16 - - - - - - - Trust and Wealth Management: 22 - - -Capitol Day Photo Gallery 25 - - -FBEF Welcome Reception Fundraiser a Success! 27 - - - - - Personal Transactions 28 - - - - - - - - - - - - - Kudos 30 - - - - - - - Upcoming Events 31 - - - - - Advertising Directory 31 - - - - - - - - Did You Know? Five Lessons from Recent Pre-Sale Planning Cases

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Florida Bankers Association pricco@floridabankers.com

Brooke Harrison Publications Director Florida Bankers Association bharrison@floridabankers.com

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Jose Cueto Chair

Derek Jones Chair-Elect

Bill Penney Immediate Past Chair

Fab Brumley Second Immediate Past Chair

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On the Cover: ServisFirst Bank EVP and COO Rodney Rushing and Chairman, President and CEO Tom Boughton at the J.C. Newman Cigar Company in Tampa, Fla.

Florida Bankers Association: The voice of Florida banking since 1888.

Photos by Daniese Betito, Images for Business, Orlanda, Fla.

CHAIR’S MESSAGE

JOIN US IN PALM BEACH IN JUNE

BY JOSE CUETO, FBA CHAIR

P lans are in full swing for the FBA’s upcoming 136th Annual Meeting, and this year we’re back in beautiful Palm Beach at The Breakers. Join us June 16-19 to network with your peers across the state. I encourage you to register now to take advantage of “early bird” discounted pricing, which ends April 17. In addition to your bank leadership, I hope that you will also bring a young banker (or two) to this event. It is important to engage the future leaders of our industry. Our Annual Meeting gives us the opportunity to hear from knowledgeable speakers, recognize hardworking bankers, and raise funds for FBA’s advocacy efforts. We will also conduct business such as installing new officers and board members. Upon completing my year as your FBA Chair, I will pass the torch to Incoming Chair Derek Jones. What will our schedule look like? The event begins with board meetings on Sunday. Monday brings the informative “Rap with the Regulators” panel with representatives from each of the regulatory bodies (which will be more relevant than ever this year!), and an ABA and ICBA panel, followed by the Welcome Reception. This is a great time to explore the tradeshow and learn more about the products and services that could make a difference for your financial institution. We’re grateful to the vendors and partners who exhibit and sponsor our event! Be sure to take notes during the informative sessions and breakouts on Tuesday. The FBA puts on an excellent program each year. This year, we’ll cover timely topics such as interest rate risk, practical uses for AI, fraud and deposit acquisition. On Tuesday evening we’ll enjoy the BankPac Silent Auction. We encourage you to donate an item for the auction. More importantly, bid high and bid often! As BankPac’s largest fundraiser of the year, the Silent Auction provides important funds to support political candidates who champion our industry and advocate for a free and competitive marketplace.

The Breakers

We will wrap up the Annual Meeting with our final banquet and evening entertainment, which never disappoints. Of course, you’ll also have time to enjoy your stay in Palm Beach and the amenities at The Breakers. Attending the Annual Meeting is a great way to learn more about the association’s efforts and how you can be involved in our advocacy. I hope every FBA member bank will send at least one representative to the Annual Meeting in June. Don’t wait to register - reserve your spot today! Visit the FBA website to register and stay up-to-date with the most current program information: www. FloridaBankers.com/AnnualMeeting. I hope to see you in Palm Beach in June!

4 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

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PRESIDENT'S PERSPECTIVE

SPRING UPDATE: RECENT ENGAGEMENT WITH THE FLORIDA DELEGATION IN WASHINGTON D.C.

BY KATHY KRANINGER, FBA PRESIDENT AND CEO

B y the time you read this message, it will be spring, and the 2024 Florida legislative session will be over! But Federal regulatory actions will be heating up and so will the FBA’s event calendar! Community Engagement Regardless of where things fall out legislatively, we cannot take our friends for granted and we always need more allies. We will be in touch in the coming months about what you can do to support our advocacy and engagement initiatives from your communities with your team, directors, and customers — it won’t be hard, because you are probably already doing it! Let me tell you a story from my recent visit to Washington. As I discussed the critical role bankers play in communities across Florida with Congressman Franklin (R-Lakeland), he shared that in a district visit to a manufacturing company, the company had invited their banker to join. The company lauded their banker and said the business could not have gotten off the ground without the bank’s support. We agreed this is true for entrepreneurs and customers across the state, but we don’t hear it enough. At FBA, we need to hear those stories, get those photos, and gather the data that underscores the impact bankers have. As an industry, we need to invite legislators and policymakers to our institutions, to meet our employees (their constituents), and to understand our business. We will start small this summer and grow the effort over time, based on results, but I am confident with your participation and a strong strategy we can strengthen our network of friends and allies. The beauty of the plan — you

keep doing in your communities exactly what you would otherwise do! Just let FBA know so we can pull it into an industry initiative and amplify the impact. More to come on this… Engagement in Washington, D.C. Gina and I had a whirlwind trip in Washington where we met with 21 Members of the Florida delegation over three days, had other chance Member meetings in the hall, and sat down with relevant committee staffs and Florida delegation staff. The purpose was introductory and an invitation to join our 68th Annual Washington D.C. Fly-In events (March 18-20, 2024), though we discussed issues and priorities for them and for us. Basel III Endgame is a bipartisan concern, even for those who had not heard of it before. That leads me to the Federal regulatory agenda which is moving fast on many fronts. One reason for that is the implications of the Congressional Review Act, the other “CRA”. If you aren’t familiar with this CRA, it is essentially a way for Congress to vacate rules under certain parameters and timelines. Federal agencies will want to finalize regulations as soon as possible this spring, so that if the 2024 election results in a change in power, their rules cannot be reversed by that future Congress through the CRA. I won’t go through the rules and bills we’re tracking here, but please see the new Members Only “Federal Issues and Resources” page on the FBA website. As always, the FBA team wants to hear your feedback, concerns, and accolades great and small. They are necessary to serve you better, so keep it coming! And I look forward to seeing you around the Sunshine State and in D.C. this month!

6 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

Rep. Neal Dunn

Senator Rick Scott

Rep. Aaron Bean

Rep. Brian Mast

Rep. Debbie Wasserman Schultz

Rep. Scott Franklin

Rep. Mario Diaz-Balart

WWW.FLORIDABANKERS.COM MARCH 2024 — 7

8 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

Closely Connected to its Communities ServisFirst Bank:

O ur name is our mission.” Alabama headquartered ServisFirst Bank has a reputation for seamless service and an entrepreneurial culture; the full-service commercial bank was founded in Birmingham in 2005 and will celebrate its 20th anniversary next year. The bank is focused on commercial banking, correspondent banking, cash management, and private banking. Today, ServisFirst Bank has assets exceeding $16 billion and 38 offices across the southeast. Its footprint includes Alabama, Florida, Georgia, Tennessee, South Carolina, North Carolina and Virginia. “I thought we could start a bank that was better than what we’d done before,” said Tom Broughton, ServisFirst

same time, some of the larger regional banks began to deemphasize correspondent services. It was good timing and we were able to attract key employees who had expertise in this space like David Jordan, head of Correspondent Operations, and Guillermo Chiang, who had grown and nurtured the Florida banking relationships for many years,” Rushing said. “Since beginning this division about 14 years ago, we have attracted many other talented people such as Tim Finney, who manages the division today.” The bank’s correspondent banking division has $2.2 billion in fundings and serves 350 community banks across 26 states and the District of Columbia. ServisFirst’s Agent Bank Credit Card Program is endorsed

Bank chairman, president, and CEO. Broughton founded the de novo First Commercial Bank in 1985, which was later bought by Synovus in 1992. He always knew he wanted to be a bank president; Broughton’s grandfather, father, and uncle were also bankers. “There’s nothing in the bank I haven’t done. I’ve done it all,” Broughton said.

by the American Bankers Association and issues customized consumer, business and purchase cards for more than 130 financial institutions. It was shortly after the establishment of the correspondent banking division that the bank expanded into Florida, opening a branch in Pensacola in 2011. Today, about half of the bank’s loan growth comes from West Central Florida and the panhandle. Broughton attributes the bank’s success and growth to its regional CEOs, who have market expertise and the authority to make local decisions.

“ALL REGIONAL CEOS ARE EXPERIENCED BANKERS WHO KNOW THEIR MARKET, ARE CONNECTED TO THE COMMUNITY, AND HAVE A HIGH LEVEL OF DECISION-MAKING ABILITY.”

Broughton raised $35 million in capital to start ServisFirst Bank, which at the time was the largest bank startup amount raised in the state of Alabama. He also founded and organized the formation of the bank holding company ServisFirst Bancshares, Inc., and led the Initial Public Offering in May 2014. ServisFirst opened its correspondent banking division in 2010, at a time when the bank was growing quickly and needed funding. This is when EVP & COO Rodney Rushing joined the team, having been introduced to Broughton by the bank’s first chairman Skip Brock. Rushing had previously worked for Brock’s father, Harry Brock, at Compass Bank (formerly Central Bank). Though Rushing was familiar with Broughton’s banking career and previous success with AmSouth and First Commercial Bank, their paths had never crossed. “After the 2008 real estate crash, many correspondent focused banks were going out of business, while at the

- GREG BRYANT

“The biggest differentiator for ServisFirst is our autonomous structure. All regional CEOs are experienced bankers who know their market, are connected to the community, and have a high level of decision-making ability,” said Greg Bryant, West Central Florida Regional CEO. Bryant oversees Tampa, Sarasota, Venice and Orlando. Bryant’s personal relationships with members of the local community led to a recent tour of the J.C. Newman Cigar Company, the oldest family-owned premium cigar maker in America; J.C. Newman is headquartered in an iconic 113-year-old cigar factory known as “El Reloj” in the Ybor City National Historic Landmark District in Tampa, Florida. Bryant, Broughton, Rushing, and ServisFirst Bank, Continued on page 10

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ServisFirst Bank senior management, from left: West Central Florida Regional CEO Greg Bryant, Chairman, President and CEO Tom Broughton, EVP and COO Rodney Rushing, and SVP and Correspondent Banking Officer Guillermo Chiang.

ServisFirst Bank, Continued from page 9

through local schools and by partnering with non profit organizations like Junior Achievement. Bank employees are encouraged to be involved in local activities and organizations; employees also have the opportunity to give back by donating a portion of their salary to the United Way. Rushing and Broughton are proud of the bank’s accomplishments in its first 20 years but continue to humbly look ahead. Future expansion into new markets must be close to the bank’s existing footprint,

Chiang were invited to visit and take photos at the factory for their Florida Banking magazine feature. Bryant continued, “After the successful sale of Bay Cities Bank in 2015, which focused on business owners and professionals, I was looking for a like-minded bank to continue my career. ServisFirst’s vision lined up with my background and was the perfect place to continue serving my customers.” When it comes to recruiting, leadership believes

the bank’s reputation and entrepreneurial culture attracts the right talent. “We let people have a lot of autonomy,” Rushing said. “We don’t buy talent; the right people who are looking for a bank where they can take care of their customers seem to find us.” Giving back to the

and the bank’s focus — as it always has and will be — is a commitment to its mission of putting “service first.” “I like to think that ServisFirst is the preferred bank for business owners seeking a high touch, service-oriented approach, coupled with local decision making,” Bryant said.

“OURS IS A SIMPLE BUSINESS MODEL: BE OPPORTUNISTIC.”

- TOM BROUGHTON

community is a natural extension of the bank’s commitment to service; each of the bank’s regions participates in community sponsorships and charitable contributions. For example, ServisFirst Bank facilitates financial literacy training to children and young adults

Broughton concluded, “Ours is a simple business model: Be opportunistic,” encapsulating ServisFirst’s commitment to staying agile and capitalizing on opportunities in the ever-evolving financial landscape.

10 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

THOMAS A. BROUGHTON III

Tom Broughton serves as chairman, president, and chief executive officer of ServisFirst Bank. In 1985, Broughton founded the de novo First Commercial Bank and was named president. When First Commercial Bank was bought by Synovus in 1992, he continued as president and was named chief executive officer. In 2005, Broughton founded ServisFirst Bank raising $35 million in capital; he also founded and organized the foundation of ServisFirst Bancshares, Inc., the bank holding company that holds ServisFirst Bank as its subsidiary. He received a Bachelor of Science in Finance degree from The University of Alabama and a Master of Business Administration from the J. L. Kellogg Graduate School of Management at Northwestern University. Broughton was named “Community Banker of the Year” by American Banker in 2009.

RODNEY RUSHING

Rodney Rushing is executive vice president, chief operating officer at ServisFirst Bank in Birmingham. During his 41-year banking career, Rushing has managed correspondent and audit divisions and served as an executive vice president at Compass Bank. While at Compass, he held securities licenses, managing Investment Division Sales and the Correspondent Division. As EVP and COO at ServisFirst Bank, Rushing manages the bank’s Correspondent Banking Division that services over 369 bank relationships in 30 states. The division has more than $2 billion in deposits. Rushing is a past chairman and 2008 president of the Alabama Bankers Association. In addition, he is CFIA and CBA accredited. Rushing attended Auburn University where he received his bachelor’s degree in finance in 1982.

GREGORY BRYANT

Greg Bryant is the CEO – West Central Florida Region for ServisFirst Bank. He is responsible for all banking activities throughout the West, Central, and South parts of the state. Prior to joining ServisFirst in January 2016, Bryant was the president and CEO of Bay Cities Bank for 15 years. After founding Bay Cities in 1999, Bryant grew the bank to $600 million in assets before it was sold on October 1, 2015 for a then-record price. Prior to starting Bay Cities, Bryant held management positions with SouthTrust Bank and GE Capital. Bryant is a past chairman of the Florida Bankers Association and served for 12 years on the Board of Directors of the Independent Bankers’ Bank of Florida. Bryant holds a Bachelor of Science degree from Jacksonville State University; he is also a graduate of the Colorado University Graduate School of Banking. He is active in the CEO Council as well as Leadership Tampa Alumni.

GUILLERMO CHIANG

Guillermo Chiang has over 35 years of banking experience with 20 of those years as a correspondent banker in Florida. Prior to joining ServisFirst Bank, he was with BBVA Compass for 12 years, The Bankers Bank (Silverton) for six years, and The Federal Reserve Bank for six years. He started his banking career at Miami Savings Bank in 1985. Chiang currently serves on the Florida Bankers Association (FBA) BankPac Board and has been a board member of the South Florida Banking Institute (SFBI) since 2003. Chiang received his Bachelors of Business Administration Degree with a double major in Marketing & Management from Florida International University in 1989 and is also a graduate of the FBA’s Florida School of Banking at University of Florida (2006).

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GOVERNMENT RELATIONS̨̪̪̬

THANK YOU TO OUR 2024 BANKPAC BOARD OF DIRECTORS BY ANTHONY DIMARCO, FBA EXECUTIVE VICE PRESIDENT AND DIRECTOR OF GOVERNMENT AFFAIRS

T he 2024 BankPac Board of Directors is ready to make BankPac a success! The BankPac Board is made up of bankers from across the state and from all different sized financial institutions. The members of this year’s BankPac Board of Directors are: • Rick Pullum, Chair, One Florida Bank • Ralph Betancourt, Vice-Chair, First Colony Bank of Florida • Tom Basta, Citibank, N.A. • Susan Blackburn, Seacoast Bank • Randy Chesak, Hancock Whitney Bank • Guillermo Chiang, ServisFirst Bank • Jason Crowe, Community Bank • Joe Dorsey, InclusivBANK (I/O) • Veronica Flores, First National Bank of South Miami • Moyle Fritz, First National Bank Coastal Community • Barclay Harless, Valley Bank • Carlos Iafigliola, Amerant Bank, N.A. • Jason Isbell, Regions Financial Corporation • McHenry Kane, City National Bank of Florida • Neil Kinnebrew, Synovus Financial Corporation • Greg Littleton, Citizens Bank & Trust • John Medina, First Federal Bank of Florida • Dennis Murphy, Gulfside Bank

• Isis Pacheco Velasco, Interamerican Bank FSB • Tom Pennekamp, Truist Bank • Eric Schreck, TrustCo Bank • Mike Sleaford, SouthState Bank • Alex Soto, International Finance Bank • John Thompson, Central Bank • Rob Trott, First National Bankers Bank • Shaun Williams, Marine Bank & Trust Company The FBA Board of Directors and the BankPac Board of Directors thank all who have made contributions to BankPac throughout the years. BankPac funds are essential for supporting candidates who advocate for a free and competitive marketplace. BankPac contributions help to protect the future of our member institutions. The BankPac Silent Auction is coming soon! Please join us Tuesday evening, June 18, at the FBA’s 136th Annual Meeting at The Breakers, Palm Beach to shop and BID on items large and small! All proceeds from the Silent Auction go to BankPac. Please donate an item to the Silent Auction today. Contact Cheryl Tucker for more details at (850) 701-3508 or ctucker@ floridabankers.com. Once again, the FBA thanks its 2024 BankPac Board of Directors for their time and talents in helping this critical mission.

BANKPAC SILENT AUCTION THE EVENING OF TUESDAY, JUNE 18TH THE BREAKERS, PALM BEACH PLEASE JOIN US FOR THE

12 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

BASEL III HURTS BANKS, BUSINESSES AND INDIVIDUALS

BY CONGRESSMAN BLAINE LUETKEMEYER

B ank collapses last year spurred panic over potential failures and bank runs that could topple our already fragile economy. With record-high inflation and a president unwilling to curtail his spending, it’s reasonable to look for a safety net to protect Americans. However, the proposal from the Federal Reserve, FDIC, and Office of the Comptroller of the Currency (OCC) places the burden of providing a financial cushion on banks,

governments shut down economies around the world, and banks managed to weather the storm. Poorly managed banks may create isolated crises, but Basel III would throw out carefully constructed bipartisan efforts to address these circumstances. Last summer, Sens. Scott Brown and Tim Scott (R-SC) announced plans for the Senate Banking Committee to hold its first markup hearing in almost four years to bolster bank executive accountability. Sen. Scott also

businesses and individuals. The Basel III Endgame proposal, as it’s known, suggests hitting U.S. banks with higher capital requirements often beyond what their internal risk management strategies deem necessary. For some of the more well-known banks, this would lock up an additional 20 percent of their cash. Not only does Basel III punish an entire industry for the mismanagement of a few banks, but these requirements pose significant challenges for small businesses and individuals. Forcing banks to sock away more money chokes their

worked with Sen. Sherrod Brown (D-OH) to introduce the Recovering Executive Compensation Obtained from Unaccountable Practices (RECOUP) Act. This bill holds bank executives financially responsible for failures. Additionally, I’ve offered legislation guaranteeing noninterest-bearing transaction accounts in the case of a systemic risk exception. This would work to prevent or mitigate bank runs in situations that threaten our financial stability. I’ve also introduced a bill making the Federal Reserve’s Bank Term Lending Program

NOT ONLY DOES BASEL III PUNISH AN ENTIRE INDUSTRY FOR THE MISMANAGEMENT OF A FEW BANKS, BUT THESE REQUIREMENTS POSE SIGNIFICANT CHALLENGES FOR SMALL BUSINESSES AND INDIVIDUALS.

(BTFP) facility permanent. BTFP is an emergency lending program designed to provide banks and other lenders with liquidity, providing for a financial cushion, when necessary, without cutting off access to capital for businesses and individuals year-round. I fear the architects of Basel III understand the destructive implications of their proposal and aim to claim greater power and control over the United States banking system. We have the largest and most successful financial system in the world, yet proponents of Basel III Endgame would send us into the same economic disarray we see in Europe. Our banks don’t need their standards.

lending capabilities, meaning people who need loans will have a tougher time getting them. Those who can get loans will see higher interest rates — yes even higher. Decreasing access to and raising the cost of capital sets back basic pieces of the American Dream from buying a home to starting and maintaining a business. Consumers will likely turn to alternative forms of funding with less regulatory oversight and often zero capital requirements, defeating the purpose of the rule changes. Simply put, Basel III is an overreaction to the issue of bank failures. Throughout the COVID pandemic,

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BANCSERV ENDORSED PARTNER: ODP BUSINESS SOLUTIONS

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GIVE WORK A WORKOUT

BY MARINA FLETCHER, SR. DESIGN MANAGER, DESIGN STUDIO AT ODP BUSINESS SOLUTIONS

I ntegrating active furniture and spaces into your office can help employees incorporate movement during the workday and reinforce your commitment to wellness in the workplace. The Workspace Interiors team at ODP Business Solutions can help you create and furnish active areas with solutions like treadmill desks, active seating, and more. Look to us to help you equip your space so you can get your employees up and moving — and make static working and sedentary office environments a thing of the past. Don’t take productivity sitting down Sitting for long periods doesn’t just add more strain on the body; it can also affect digestion, mental health, weight, and blood pressure.* Regular activity can help improve circulation and oxygen flow to the brain, boosting energy levels, focus, and productivity — as well as help reduce risks of obesity, heart disease, and diabetes.** Keep these seating options in mind: • Kneeling chairs help take pressure off the back by positioning the body in a kneeling stance and engaging the core while sitting. • Exercise ball chairs engage peoples’ core and back muscles while sitting — improving posture and balance. • Standing/perching stools provide an in-between option for sitting and standing that helps keep the spine more erect. • Wobble stools tilt and rock from an unstable base, requiring balance and posture control. If you’re looking to gradually introduce active seating into your workspace — consider adding balance disc cushions to your current chairs to start. They engage the body’s core to remain balanced while seated and can be used on any chair.

Go from work surface to workout When it comes to sedentary working, seating is often the first thing that comes to mind. But what about the types of desks being used? It turns out they can also play a big role in how active employees are. Standing burns more calories than sitting and can help improve posture and energy levels. Consider the following: • Standing desks get people up from their seats while working. • Sit-stand desks can be easily adjusted to alternate between sitting and standing heights to reduce sedentary time. • Treadmill desks allow employees to walk at a slow pace while working to keep them moving. • Desk pedal exercisers can be used by employees to get in extra activity while seated. By viewing the desks in your office as potential solutions for fitness and exercise, you can help your Breaking up sedentary periods throughout the day can help you get your employees moving, actively engage muscles, and avoid static postures. Space design plays a key role in how you can help encourage motion and activity. Designating and implementing activity promoting spaces can provide the following benefits: • Open floor plans provide room to stretch and move around naturally, which can help encourage and increase movement when compared to cramped spaces. • Standing meeting areas featuring stand-up desks or high-top tables for stand-up meetings get employees on their feet. • Outdoor walking paths encourage activity and provide fresh air. staff increase movement and activity. Give wellness a living space

*Source: www.yalemedicine.org/news/sitting-health-risks **Source: www.cdc.gov/physicalactivity/basics/pa-health/

14 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING

implement ping-pong, foosball, or even shuffleboard tables to encourage leisurely activity during breaks or after hours. And if you don’t have a dedicated space for gaming but still want to give employees the ability to get their game on (and some much-needed stress relief), consider tables that convert from working surfaces to regulation-size tennis tables. By equipping your office with solutions that can help reduce sedentary working, you’ll not only be able to help promote wellness and facilitate activity, but also help boost morale, increase collaboration, and even energize workplace culture. Get moving with Workspace Interiors Workspace Interiors brings you a knowledgeable team with access to innovative furniture and ideas. We’re more than a furniture vendor. Workspace Interiors provides total turnkey solutions that suit your unique requirements, and we can manage any or all parts of the process. Find out how we can help you support collaboration throughout your organization. Contact Cheryl Krawczyk at 760-622-0112 or cheryl.krawczyk@ odpbusiness.com for more information.

Did you know that active space design even extends to stairwells? By making stairs more visible and appealing, you can help promote their usage over elevators. Outfit your office for activity Refreshing the furniture in your workspace and designating specific areas for activity can be great ways to help encourage more activity among employees. But what else can be done? Even smaller, simpler solutions can go a long way. Consider the following options when looking for additional ways to help promote wellness in the workplace. • Conference rooms with whiteboards and stand up tables can facilitate standing meetings. • Printers, supplies, and other shared equipment can be placed away from desks so that people must get up frequently to access them. • Centrally located water stations encourage hydration (and walking) trips. • Technology such as laptops, wireless internet, and headsets help facilitate mobile working in non-desk locales throughout your office. Want to add some fun to workplace fitness? If you have underutilized spaces in your workplace, you can

FLORIDA TRUST & WEALTH MANAGEMENT SCHOOL July 21-26, Rosen Shingle Creek Resort, Orlando Advance your career by enrolling in one of the Florida Bankers Association’s nationally-renowned schools taking place this summer!

FLORIDA SCHOOL OF BANKING August 4-10, J. Wayne Reitz Union, University of Florida, Gainesville

For more information about the FBA’s schools, please visit the FBA website at www.FloridaBankers.com or contact Olga Williams at ojwilliams@floridabankers.com.

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TRUST AND WEALTH MANAGEMENT

BY MARK R. PARTHEMER, JD, AEP, ACTEC FELLOW FIVE LESSONS FROM RECENT PRE-SALE PLANNING CASES

ORIGINALLY PUBLISHED IN THE DECEMBER 2023 ISSUE OF THE NAEPC JOURNAL OF ESTATE & TAX PLANNING.

F or some estate and gift tax advisors counseling clients on succession planning, that dragon is the IRS. Many clients look to minimize the tax costs of business succession when selling to a third party, employees, other shareholders, or transitioning within the family. It may seem the IRS thwarts attempts to do so that are outside the lines of accepted planning and tax rules. This article examines five lessons to be learned from three recent cases and one Chief Counsel Advisory (CCA) in which the IRS challenged pre-sale planning techniques. Assignment of Income Assignment of income is the shifting of taxation from one party to another, a concept that has long been recognized in the Internal Revenue Code (IRC). Specifically, IRC Section 61 tells us that income from whatever source is to be taxed to the person or entity that earned it ( Helvering v. Horst, 311 U.S. 112 (1940)). To shift income to another taxpayer, the shift must occur before the income is earned. For those seeking to sell their business, the shift of ownership of some or all of one’s entity interests often is discussed. One strategy is to minimize the seller’s overall tax cost by contributing interests to others. One often used technique is to transfer some of the owner’s ownership interests to a tax-exempt organization. The recipient tax-exempt entity (TEE) could be a public charity, private foundation or donor advised fund (DAF). There are two reasons that this technique can reduce the tax cost: (1) tax exempt entities do not need to pay capital gains tax on the gains allocable to the shares it owns, and (2) a charitable contribution deduction can be generated by a contribution to the exempt entity. For now, let us focus on the first. For example, imagine a taxpayer is about to sell her company through a stock sale for $10 million. Her basis is $2 million. Were she to sell all of her

stock directly or indirectly (e.g., shares in a grantor trust), she would experience an $8 million gain. If she successfully contributed 25 percent to a TEE, and assuming no discounting, 25 percent of the gain would shift, reducing her taxable gain to $6 million – and in fact, no tax owed on the shares held by the tax-exempt entity. A variation is to spread the taxable gain among more than one taxpayer. Similar to a charitable contribution, this approach entails transferring to others, such as children or grandchildren, or into non-grantor trusts for them. This can shift some of the gain to those with lower effective tax rates, or even if neutral on tax rates, spread the gain among others. To be effective in implementing either variation or technique of this strategy, the transfers must be made before the income is earned, that is, before the company is sold. But according to a recent case, when the company is sold for assignment of income purposes is a gray area that can be a conundrum for taxpayers and their advisors. While it is clear that a company is sold no later than the date upon which the buyers furnish payment, for assignment of income tax purposes, the sale can be deemed to occur on an earlier date. That date is the one on which the sale is virtually certain or practically certain to occur. Imagine that a business owner receives an unsolicited offer from an unknown party to purchase the company for X dollars. If the owner says yes, has the deal become certain? Typically, it has not because after the parties come to an understanding, there can be non-binding letters of intent, purchase agreement documentation, due diligence, inspections, and more. So long as the buyer can walk away without a breach (e.g., no funds forfeited), we would conclude the sale likely has not become a “done deal.” The Tax Court focuses on the realities of the transaction, not on formalities or hypotheticals, such as the hypothetical possibility of abandonment.

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on virtual certainty of the deal, but on his failure to comply with the Section 178(f)(8) substantiation requirements (see callout box). Given the size of the purported deduction, requirements set for in number 5 applied. The IRS argued that the contemporaneous written acknowledgment from the DAF was ineffective. Although the Court stated that it applies the rules strictly and that the doctrine of substantial compliance is inapplicable, it held that the IRS was wrong, and the acknowledgment was in compliance. The IRS also argued that the valuation by the representative of the investment banking firm did not constitute a qualified appraisal, as required. On this issue, the Tax Court flipped and described the qualifications as directory not mandatory, but ironically found for the IRS nonetheless. Among the issues were that the individual who did the valuation was not a credentialed appraiser, regularly providing reports for fees, and that the appraisal itself contained errors that even if it had been prepared by an individual with the appropriate bona fides, the product itself was insufficient. Thus, no charitable contribution deduction was allowed. One could question the jurisprudence of punishing a donor so significantly for what could be characterized as a minor technicality. After all, the shares were valued based on the purchase price, so what better indication of the “willing buyer/willing seller” test? However, these tax rules, now codified in the statute, were established after Congress was made aware of significant abuse stemming from the overvaluation of property contributed to charities. See Abusive Tax Shelters: Hearing Before the S. Subcomm. On Oversight of the Internal Revenue Serv. of the S. Comm. on Fin., 98th Cong. 71 (1983) (statement of Robert G. Woodward, Acting Tax Legis. Couns., Dep't of Treasury) The result is the rules as we now have them, and the Court was correct in its application. The lesson here is that taxpayers, their advisors, and tax preparers should be careful to abide by the rules. TRIPLE WHAMMY: In this case, we have seen a double whammy – the income on the donated shares was taxed to Mr. Hoensheid, and his income tax deduction on the donation was denied, but there is another shoe to drop. Under state law, the transfer to his DAF was effective, so not only did he have to pay tax on the proceeds relative to those shares with no deduction, he also didn’t get the proceeds. They rightfully belong to his DAF.

On the other hand, the mere anticipation or expectation of income at the time of the gift does not establish that a donor’s right to income is fixed. Instead, the Tax Court looks to several other factors that bear upon whether the sale of shares was virtually certain to occur at the time of a purported gift as part of the same transaction. Relevant factors may include (1) any legal obligation to sell by the donee, (2) the actions already taken by the parties to effect the transaction, (3) the remaining unresolved transactional contingencies, and (4) the status of the corporate formalities required to finalize the transaction. See Jones v. United States, 531 F.2d 1343, 1345 (6th Cir. 1976); Allen v. Commissioner, 66 T.C. 340, 346 (1976). In a 2023 case, some of the relevant facts can be summarized in this timeline: Day 1: Company board of directors approves sale of company and approves shareholder contributing some shares to a DAF. Days 2+: Sale of company successfully negotiated, but not closed. Day 32: DAF receives stock certificate; seller pays over $10 million in bonuses and dividends to sweep all cash out of the company. Day 33: Sales agreement modified to reflect shares at DAF. Day 34: Sale of company completed. One of the issues in the case resulted from the donor/shareholder not reporting capital gains on the shares contributed to the DAF. In Tax Court, the IRS successfully argued that all gains were to be taxed to the donor due to acts that suggested the sale was a virtual certainty. One of the key points the Court made was that it was considered highly improbable that the sellers would have emptied the company of its working capital if the transaction had even a small risk of not consummating ( Estate of Hoensheid v. Comm., T.C. Memo. 2023-34). The lesson to be learned from Hoensheid on assignment of income is that transfers, whether to a tax exempt entity or other taxpayer, will be effective when executed while there is still a meaningful possibility that the contemplated sale will not take place. While we know that some clients wish only to transfer once they are certain the deal will close, the advice to them is that likely by such time, it is too late. Charitable Deduction Substantiation Requirements Continuing on with Hoensheid, we add these facts: Day 150: DAF sends letter acknowledging receipt of the shares on Day One. Day 200: Investment banking firm provided, for free, an unsigned letter valuing the shares donated to the charity – but reflected the wrong date. On his tax return, Mr. Hoensheid took a $3.2 million charitable contribution deduction. The IRS successfully denied the deduction. This was not based

Setting Share Value in a Buy-Sell Agreement that Binds the IRS

Two brothers, Thomas and Michael Connelley, owned a company and established a buy-sell agreement. Two of its key provisions, both common, play a key role in this case. First, the agreement provided that at the death of one of the shareholders, the surviving brother Five Lessons, Continued on page 18

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Five Lessons, Continued from page 17

IRC Section 170(f)(8) – Substantiation Requirements

had the option to purchase the shares. To the extent not invoked, the company was obligated to redeem all of the (remaining) shares of the deceased shareholder. For pricing, the agreement provided two methodologies for establishing the shares’ value. First, it would be at the value that the shareholders annually agree and set forth on the agreement’s schedule. Second, the shareholders were authorized to hire two or more appraisers, and average their valuations. As is often the case in such matters, neither method was utilized. Thomas, who owned 77.18 percent of the shares, passed with no set valuation. Michael did not purchase the shares, so the company did. Thomas’ son, Michael’s nephew, was executor of the estate, and he and Michael agreed to a redemption value of $3 million, without any support such as of an appraisal. The company had purchased life insurance with a death benefit of $3.5 million: $500,000 was added to operating capital, and the remaining $3 million used to purchase the shares from Thomas’ estate. It is possible to fix value for estate tax purposes under Section 2703. To do so, the following requirements must be met: a. Three statutory requirements (i) must be a bona fide business arrangement, (ii) the agreement must not be a device to transfer property to the family for less than full adequate consideration, and (iii) the agreement must be comparable to similar agreements negotiated at arm’s length between unrelated parties. b. There must be a fixed and determinable offering price, the agreement must be binding both during life and after death. c. There must be a bona fide business reason. d. There must not be a testamentary disposition for less than full and adequate consideration. The first issue for the court was whether the agreement by the estate and surviving brother satisfied these requirements and thus bind the IRS. The court found in favor of the IRS that the buy-sell agreement was ineffective to fix the price as, among other things, the price was not fixed and determinable. Fixed would have been set; determinable would have been based on a formula ( Connelly v. United States, No. 21-3683 (8th Cir. 2023)). Valuing a Company that Owns Life Insurance to Redeem Shares We are not done learning from the above discussed Connelly case but getting to perhaps the more important issue to the IRS, the valuation of a company that owns life insurance to fund a mandatory stock redemption. The IRS appraiser valued Thomas Connelley’s shares at slightly less than $3 million excluding $500,000 of the insurance death benefit because these funds were used for capital to operate the company.

1. Less than $250. Must keep adequate records to substantiate the contribution. If the contribution is in cash, you must have a bank record or a receipt from the charity identifying the name of the charity, the date of the contribution, and the amount of the contribution. 2. Between $250 - $500. Must keep adequate records and obtain a receipt, called a Contemporaneous Written Acknowledgment (CWA)*, from the charity. 3. Greater than $500, but less than $5,000. All substantiation previously stated plus additional information as the Treasury may require. This essentially means meeting the requirements of the specific IRS form for income tax reporting and its instructions. For example, Form 8283 provides taxpayers with instructions on the information that must be provided for property donations, including basis in the property, and dates when the property was acquired and donated, and the method used to determine the fair market value. There are also specific substantiation requirements for vehicle, boat and airplane donations that are above $500, including a CWA and a 1098-C, if sold by the charity. 4. Greater than $5,000. All substantiation previously stated as well as a qualified appraisal that supports the value claimed for the donated property. Generally, the taxpayer must provide a summary of the appraisal. 5. Greater than $500,000 ($20,000 for artwork). Must attach a qualified appraisal and obtain the signature of an authorized official of the charity on Form 8283. Note: An appraisal must be attached for a gift of a qualified conservation easement regardless of value. * Indicates the amount of the cash and a description of any property other than cash contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. It must be received by the earlier of the filing of the tax return or the due date for the return, including extensions.

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January – July, Yr 2: Actively looking to sell, Company hires investment bankers and receives tender offers from five potential buyers. July, Year 2: Three days after receiving the offers, shareholder funds a GRAT using Year 1 409A value. Dec. 31, Year 2: 409A value doubled. Pre closing: Taxpayer funded a charitable remainder trust and used valuation based on the tender offer price. Year 4: Merger closed at four times Year 1 409A valuation. The IRS audited the GRAT and argued that the shareholder did not use a proper gift tax valuation when funding shares into a GRAT. Seeking internal guidance, the matter was referred to the Chief Counsel’s office. Guidance from the office, referred to as a Chief Counsel Advisory (CCA), is not dispositive of the matter nor is it binding precedent. However, it provides the auditor and the taxpayer of the position the IRS likely would take should the matter be litigated. The Chief Counsel was impressed, to the detriment of the taxpayer, by the position that no separate valuation was needed because, according to the taxpayer, business operations had not meaningfully changed in the seven months between the 409A valuation and the funding of the GRAT. The CCA notes, however, that much had changed. The company had hired two investment bankers to market the firm and three days before funding the GRAT, the company had received offers from five different potential buyers, each in the multi billion dollar range. Generally, when advisors contemplate valuation issues for GRATs, they have a sense of confidence in the regulations that suggest if a value is inaccurate, the annuity simply is adjusted to reflect the proper valuation. The trust is to pay to the recipient, in the case of an undervaluation, or be repaid by the recipient, in the case of an overvaluation, an amount equal to the difference between the amount the trust should have paid if the correct value were used and the amount the trust actually distributed (Treas. Reg. 1.664-2(a)(iii)). In fact, GRAT regulations require language in the GRAT trust agreement to this effect (Treas. Reg. 25-2702(c)(2)). A valuation of property for Federal transfer tax purposes generally is made as of the valuation date without regard to events happening after that date ( Ithaca Trust Co. v. United States, 279 U.S. 151 (1929)). While the company eventually was sold to one of the offering firms, closing did not occur until after the GRAT term had expired. Still, the IRS seemed displeased that the ultimate price was billions of dollars and more than four times the original value. It concluded that the 409A valuation was outdated and misleading. Because the annuity was “34 cents on the dollar” and held back “tens of millions,” the CCA said the annuity did not qualify under Section 2702. The resulting operational failure caused the entire funding value of the shares transferred into the GRAT to be Five Lessons, Continued on page 20

At trial, the parties agreed to a $3.1 million valuation of the shares in the estate and proceeded on the merits of the insurance. Both also agreed that the $500,000 added to capital increased the value of the company, but disagreed on whether the balance of the death benefit did. The positions were set: the taxpayer argued no, so the company was worth $3.86 million; the IRS said yes, so the company was worth $6.86 million. The taxpayer had several precedents from other Federal circuit courts as support. In 2005, the 11th Circuit Court (Alabama, Florida, and Georgia) held insurance owned by company is an asset that is offset dollar-for-dollar by the contractual liability to redeem the shares, zeroing it out ( Estate of Blount, 428 F.3d 1338 (11th Cir. 2005)). In 1999, the 9th Circuit Court (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) determined that the purchase of a deceased’s stock in an incorporated law firm was an offset by the obligation (the rest was deemed compensation based on the terms of the agreement). Estate of Cartwright, 183 F 2d 1035. But in 2023, the 8th Circuit Court (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) in Connelly rejected that argument and included the death benefit in valuing the company with no offsetting liability. This was a victory for the IRS. This leaves a split in the Federal circuits, which is one of the pathways to the U.S. Supreme Court. Of course, we do not see a significant number of Supreme Court cases in the estate, tax and trust planning field, so this is a topic perhaps worthy of monitoring as well as the more relevant lesson that of the IRS position and willingness to litigate their stance. Appraisal Frugality Doesn’t Pay In planning, one can be “penny wise but pound foolish,” and this rings especially true when it comes to valuations. It is understandable that business owners can be hesitant to embrace the need for an additional appraisal and its concomitant effort and expense. In fact, those companies with a non-qualified deferred compensation plan, known as a 409A plan, already are required to obtain an annual appraisal. It can be difficult to appreciate the nuance between appraisals and valuations for different purposes, let alone different tax purposes. Thus, it can be tempting for a business owner to seek to use one valuation for both purposes, but as this CCA demonstrates yet again, this is a mistake that can be tax costly. Just as in the charitable deduction cases, the need for a proper gift tax valuation is unavoidable and applies when implementing estate tax planning techniques. In this matter, the Chief Counsel focused on the failure to obtain a proper appraisal. Some relevant facts: December 31, Yr 1: Company obtains annual 409A valuation.

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