Eric and Ellen are looking for someone to coordinate their various retirement plans, begin a college savings plan for their kids, invest their idle cash, help them think through potential private equity deals and develop a strategy for managing Eric’s company stock plans and options.
What We Learned
The couple is being pulled in a thousand directions with little time outside of work. Just showing up for basic family events is becoming next to impossible. Eric and Ellen have always enjoyed managing the family finances together, but things are beginning to slip through the cracks.
Company stock is becoming a heavy component of their overall net worth because of Eric’s company stock options and he doesn’t know how to best utilize the various types – Restricted Stock Units (RSU), Non-Qualified Options (NQO), and Incentive Stock Options (ISO). Additionally, they are strongly committed to charitable giving but struggle to plan beyond regular cash donations.
We would suggest a structured plan to sell the vesting RSUs and use the proceeds to exercise the ISO options. This strategy can enable Eric to own the stock outright and receive capital gain treatment on future sales, significantly reducing potential tax burdens.
To support their charitable giving, we can introduce a donor advised fund that could utilize company stock for funding. Eric and Ellen would be able to receive a tax deduction for the full fair market value of the company stock and eliminate the potentially significant taxable gain on the sale of stock. They could make thoughtful grants from their donor advised fund over time to specific charitable initiatives and programs.
Establishing Individual Retirement Accounts that could pursue private equity investments can remove the potential for tax headaches. Since private equity investments are generally long-term, high-risk investments, guidelines can be set regarding how much Eric should allocate to them.
By adding diversification to their current retirement plans and investment accounts, idle cash can be invested without significantly altering the family risk profile. Meanwhile, creating a college savings plan for each of the children and beginning a systematic funding program with a targeted funding goal in place would take care of the children.
Eric and Ellen could achieve a single view to their entire net worth, a charitable funding strategy that takes full advantage of all tax incentives while helping to keep Eric’s company stock allocation at a manageable level. Additional cash flow from the tax savings can even enable the family to extend their investments into real estate, which they have always wanted to do.
Most importantly, this process would allow Eric and Ellen to retain an active roles in the decision-making process without being burdened with the responsibility of managing the family’s wealth.
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Our case studies are for illustrative purposes only and should not be considered as investment advice. The information provided is hypothetical in nature, does not reflect actual investment results, and is not a guarantee of future results. No reliance should be placed on any such information when making an investment decision. Information provided has been fictionalized for confidentiality. It is not known whether the listed client approve or disapprove of SHWM or the advisory services provided.