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How will Biltmore Estate handle the move to new owners?

December 30, 2017 GMT

ASHEVILLE, N.C. (AP) — No one likes to think about the passing of loved ones, but at the Biltmore Estate it’s a vital part of long-term survival for the family-owned business.

“The number one reason most family-owned businesses go out of business is they don’t take into consideration the generational tax transfer,” said Steve Watson, chief financial officer and vice president at the Biltmore Co., which operates the estate. “So that was something that was very forefront for us, and we spent a lot of time and energy and effort on it.”

The estate endured two major losses this year, first with the death of William A.V. Cecil Sr. in October, and then three weeks later his wife, Mary “Mimi” Ryan Cecil. Mr. Cecil, the grandson of estate builder George Vanderbilt, was 89. Mimi Cecil was 85. Together they owned the Biltmore Co.

Mr. Cecil was a visionary at the estate, taking over in the late 1950s when the huge, historic property, which had opened for public visitation in 1930, was hemorrhaging money. Mimi Cecil was an attorney in New York City, where her husband also lived, when they decided to move back to his hometown and try to save the 8,000-acre estate and 250-room French chateau.

Their son, Bill Cecil Jr., and their daughter, Dini Pickering, now own and operate the company.

In an interview in the Biltmore Company’s headquarters on Pack Square downtown, Bill Cecil said the estate should see no operational changes during this transition in ownership. Also, through careful and shrewd planning, it will not face an enormous inheritance tax bill.

The Biltmore Co. dates to 1933, but brothers William Cecil Sr. and George Cecil split the company in 1978-’79, with William securing ownership of the estate and George forming a separate development company, Biltmore Farms. That company went on to build hotels, commercial buildings and neighborhoods, including Biltmore Park.

From the time of that split, Bill Cecil Sr. knew estate and tax planning was vital.

“When they did that, from that moment on my dad had estate tax planning assigned to a team of people in the company, from 1978 going forward,” Cecil Jr. said. “So almost everything we did had an undertone or a consideration for making sure that when the eventual transfer happened, that we would be intact and everything would be fine. We’re in the process now, so we’ll see how well (it works). But we have all good reason to believe that it’s going quite well.”

In 1995, the elder Cecil retired and Cecil Jr. took over day-to-day operations. Dini Pickering is the chair of the Board of Directors.

The estate is a major employer in Western North Carolina, with up to 2,400 workers during the Christmas season, and it brings in 1.4 million visitors annually. Over the past 20 years, it has added two hotels on the property and Antler Hill Village, a collection of shops, a restaurant and a farm attraction near the Biltmore Winery.

All of those operations have been very successful, boosting the company’s bottom line. As a privately owned company, Biltmore does not disclose its profit margin, but Cecil will gladly talk about total revenues.

“I remember when I took over in ’95, the sales were $32 million,” Cecil said. “At the end of last year, sales were $207 million.”

Those sales are vital to the company’s core mission: preserving in pristine condition the estate, which Vanderbilt opened in 1895.

“I can quote it without even reading it — the mission is to preserve Biltmore Estate as a privately owned, profitable, working estate,” Cecil said. “My dad came up with that, and really to preserve Biltmore Estate is probably the key.”

Pickering, who concentrates on long-range planning, expects the estate to keep running as it has for decades.

“Since the ownership structure which was in place during Dad’s life continues today, there will be no real changes,” Pickering said. “Bill remains the CEO of Biltmore’s companies, and I remain Chair of the Board of Directors. We are also pleased to have welcomed some of our children into the family business. Together, we will ensure that the strategic direction continues to honor our family legacy and preserve this beautiful property.”

That ownership plan comprises at least five companies that own the various entities on the property. The Biltmore Co., for instance, owns the house, which has an assessed market value of $157.2 million, according to Buncombe County commercial tax appraiser Bob May. The estate gets an agricultural deferment on about half of that value because much of the estate is farmed, but the Biltmore Co. still paid $453,795 in property taxes on the house in 2017.

Other companies were set up for the ownership of Antler Hill Village, the Winery, a mostly agricultural piece of acreage and the hotels (see box).

Watson said it’s important to remember that the company is a privately held businesses that gets no special tax breaks, and it is not in a special trust that is shielded from estate taxes. An effort was made after the turn of the century to have Congress consider a special protective designation for properties like Biltmore, but that proposal never made it out of committee, Cecil said.

Like Cecil, Watson did not provide details of their estate and tax strategies, other than to say they take a conservative approach and meticulously adhere to all applicable laws.

“All I will say, is we paid estate and gift taxes just like every other individual — we got no special break,” Watson said. “We are not a nonprofit, we’re not a foundation, we’re not owned by the government and we don’t take any grants from the government. We pay federal, state, local, property and sales tax, and we are a business — and we are a fairly large business in Western North Carolina.”

Watson did say, “We’ve used standard estate tax planning techniques that everyone in the world uses.”

Cecil said Biltmore is a conservative company, so the planning has comprised “real straightforward, conservative” approaches recommended by their team and their attorney, Jack Stevens.

“All of the strategies have been completely within the existing law, and a good ways in from anything extreme,” said Stevens, who at 84 still practices law. “The estate has been very conservative. They pay taxes and they expect to pay more. All of that has been completely within all the rules.”

The idea has been to limit exposure through careful planning. Stevens said the planning has involved “a combination of things,” and that includes life insurance policies, which are a common strategy for defraying estate tax costs.

“One of the strategies is to see that growth in new business enterprises is excellent in succeeding generations,” Stevens said. “We don’t expect any immediate adverse impact because of the passing of Bill and Mimi, because a great deal of planning has occurred in past years.”

Estates valued at more than $5.5 million can face an estate tax, sometimes called the “death tax” by critics, of 40 percent, money that is due in a matter of months in some cases. Asked if Biltmore is going to have to come up with a sizable amount of money to cover estate taxes, Stevens said, “That is definitely not the case.”

The goal is such a smooth transition that the public will notice no difference in how the estate operates.

“That’s the goal and that’s what it appears like right now, with a couple of small things we didn’t anticipate, but not much,” Cecil said, referring to smaller personal possessions of his parents and their distribution to family members. “If we’ve done our job well, hopefully the public won’t notice any difference.”

Larry Hartley, a board certified elder law attorney with the Asheville firm of Strauss Attorneys, PLLC, often helps clients with estate and tax planning. He has not worked for the Biltmore Estate, but he surmises the estate, like any smart business, “would have used a myriad of different planning techniques” to legally minimize taxes and secure the estate’s future.

“I also imagine that some of these techniques were probably done years ago, maybe even with previous generations, at times when valuations were much lower,” Hartley said.

Companies often create corporations or limited liability corporations to not only run the operations more efficiently but also to diffuse ownership interests and potential taxes.

Watson said Biltmore has done that to ensure efficient operations within the company, and to be able to track profitability within those separate domains. All of the companies that operate estate businesses are owned by the heirs.

Hartley said it’s common for people to create and utilize trusts and gifting strategies to reduce tax burdens. It’s also a common business strategy to put restrictions on the ability to transfer a business to other parties, which decreases its tax value

Sometimes those with businesses will gift a percentage of the business to heirs or others. The main owner retains control of the majority of the company, but because he has technically ceded some control of the company to others, that results in a discount on the overall tax value of the company.

“There are a lot of different things you can do to make it less valuable,” Hartley said.

Married couples are also able to take advantage of two exemptions, which under current law would mean $11 million is exempted from estate taxes, rather than just $5.5 million. Sharp attorneys are able to “capture” both exemptions for tax purposes.

In 2010, the estate tax was repealed nationally, and that may have offered a shrewd team an opportunity to move more assets out of heirs’ names, thereby avoiding heavier taxes, Hartley said. The repeal lasted only for a year.

“Again, if they took advantage of transferring assets that have now grown in value, that can be an incredibly effective technique (for lowering estate taxes),” Hartley said.

In some cases, families also set up “dynasty trusts,” where assets end up outside of the estate tax arena for future generations. The heirs are beneficiaries of the trusts, but they don’t technically own them, Hartley said. Other trusts are designed to protect assets in the future from possible litigation stemming from car accidents or divorces, for example.

Many families also set up an irrevocable life insurance trust that provides a policy for the wealthy head of the household.

“That trust can be designed where it’s outside his taxable estate,” Hartley said. “The life insurance pays out immediately after death, and that provides liquidity to pay any taxes that are due, without adding to estate tax because it’s outside of the estate.”

Long-term planning is the key, Hartley said, noting that an estate worth hundreds of millions of dollars, like the Biltmore Estate, could be seriously hurt if staff had done no planning and it was suddenly hit with a 40 percent tax. Taxes could skyrocket over $100 million in such a dire scenario.

Years ago, the Internal Revenue Service had the ability to audit estates of $600,000 or more, but Congress has been steadily increasing the limits of the estate tax. Now estates of $5.5 million or more are potentially exposed to the tax, but the recently passed tax bill doubles that amount.

Hartley stressed that all the techniques he mentioned are perfectly legal and standard practice for limiting estate tax exposure.

“You would not want to tempt the IRS,” Hartley said. “I can imagine that there is a near 100-percent chance that the Biltmore Estate will be audited (on the inheritance issue).”

The Biltmore heirs believe they are prepared for that possibility, thanks to decades of careful planning.

While the estate tax issue is on their radar, Cecil and Pickering are more concerned with continuing to grow the business and ensure its viability for future generations.

“We have three of our next generation in the business right now,” Cecil said.

His oldest son, Ryan, 30, works in management in the finance department, and his middle child, a daughter named Aubrey, 27, works in operations as the liaison between the estate’s farm operations and the food and beverage department. Pickering’s son, Chase, 30, works in marketing, primarily on the hotel properties.

Cecil and Pickering want to continue to grow the estate’s businesses so they can leave a viable entity to their children and grandchildren. But they also keep Vanderbilt’s original vision in mind.

“The two things Mr. Vanderbilt originally tried to start here were an oasis for his friends and family, and then sustainable agriculture,” said Cecil, 59. “Sustainable agriculture and agriculture businesses are only about 15 percent of our total now, because the oasis part has gone up so much.”

The key to any future development on the estate is authenticity, and that involves, as Watson says, asking, “What would Mr. Vanderbilt have done?”

“So you can’t put a roller coaster in front of the Biltmore House,” Watson said with a smile. “Or you can’t do anything that would destroy this oasis, and we’ve been pitched lots of ideas over time.”

No huge plans are in the works, although Cecil says one idea that is moving ahead is an expansion of the estate’s Deerpark Restaurant.

“We’re hoping to be able to fill a middle-market kind of need with this group expansion,” Cecil said. “What I mean by that is right now we can comfortably seat 200 people in our biggest venues. We’re hoping this will give us the ability to seat blocks of 200 up to 600 people.”

The estate’s group sales department keeps track “of all the things we have to turn down because we don’t have a facility for it, or we don’t have the capability to do a good job with it,” Cecil said. “For about two or three years they’ve been pushing us to try to get this 400-600, large ballroom kind of thing, but not so big that we’re competing with the Civic Center or the Grove Park Inn.”

Other than that, Cecil’s biggest concern is reaching out to the millennial generation. That group comprises more than 40 percent of the local workforce, but “they’re only 20 percent, currently, of our guests,” Cecil said.

“I think we have an opportunity to interview and talk to and listen — hopefully listen, because that’s key, to listen to the millennials who work here, to figure where we need to be in that five-10-15- year future,” he said. “One of the big ones, at least in the short term, is we’re going to have to be very mobile friendly.”

Baby Boomers make up 60 percent of current guests, and Gen X visitation is strong, too. But the estate is always looking down the road.

Cecil smiles when talking about the 8,000-acre estate’s logging plan, which looks out 75 years, but it is a real plan. Like everything else, it’s designed to ensure the oasis remains viable.

He also tells a story about when Steve Watson interviewed for his job as CFO 18 years ago. A longtime executive told him, “You need to consider everything we do here from a 300-year perspective.”

That may seem a bit extravagant, but Cecil says that’s really their goal. They want to carry on his father’s mission, and Vanderbilt’s before him, to keep the beautiful oasis running, and in the family’s hands.

“It kind of goes to my dad’s working estate thing, where you have this sense of purpose and belonging coming out of this estate where you grew up and where the family evolved,” Cecil said.

A look at the Biltmore Estate’s property and property taxes

The Biltmore Co. — This is the main company, which owns the house and surrounding 2,485 acres. Total market value on the house $157.2 million. The estate gets an agricultural deferment for the grounds, so it pays Buncombe County property taxes on $79.1 million. In 2017, the Biltmore Co. paid property taxes of $453,795.

The Biltmore Co. also is the owner of a 1,161 acre parcel on the south side of the estate that includes riding stables. Total market value for 2017 was $29.4 million, but the property gets an agricultural deferment of $28.2 million, meaning it paid taxes on $1.23 million, or roughly $7,750.

West Range LLC — This limited liability corporation owns 3,067 acres on the west side of the estate. Total assessed value for land and buildings is $78.3 million, but the company receives an agricultural deferment on $74.6 million of the total, meaning they pay property taxes on remaining $3.6 million in value. They also pay the Biltmore Forest/ Skyland Fire District tax. Total tax paid for 2017 was $22,670.

Biltmore Estate Wine Co. — Established in 1983, this company owns the winery and associated business. Assessed value is $11.6 million. The company paid $72,395 in property tax in 2017.

The Inn on Biltmore Estate — The 210-room luxury hotel, opened in 2001, has a tax value of $46.6 million. The 2017 tax bill was $290,784.

Village Hotel On Biltmore Estate LLC — This company owns the 209-room hotel by the same name, as well as Antler Hill Village, which contains shops and a restaurant and opened in 2010. The total assessed value is $33.9 million. The 2017 tax bill was $211,652.

Busbee Lodge — A Cecil family-owned home and 659 acres on the estate. Tax value was $4.5 million but it received agricultural deferments. Taxes were paid on $791,300 of value, totaling $5,159.

Biltmore Building LLC — This is the downtown office building on Pack Square where the Biltmore Co. has its headquarters. The 2017 value was $9.6 million, and taxes paid were $104,857

Total Buncombe County property taxes paid for 2017: $1,169,062.

Source: Buncombe County Tax Department.