Client Scenarios

Client Success: The opportunity and challenge of company stock

Our client, a serial entrepreneur, had founded several successful companies.  Along the way, however, she had accumulated only modest sums, mostly from compensation packages. Things changed significantly when one of those companies conducted an initial public offering. Suddenly her "paper" wealth rose sharply and became liquid. However, as is often the case with entrepreneurs, she had a strong affinity for her company stock. She was reluctant to liquidate at the current market price in the firm belief that it would continue to out-perform the market.

Through discussions with her and her spouse, we pointed out that their dreams of financial independence and freedom were within their reach, but they were risking that by concentrating their wealth in a single stock. So we agreed upon a disciplined program for liquidation . A significant amount would be sold quickly and diversified into a core portfolio for greater financial security. Once accomplished, their capacity for speculation was greater, so the remainder would be liquidated only gradually over a period of time.

We recommended an appropriate asset allocation for re-deploying their newfound wealth. Based upon their risk tolerance, we introduced them to appropriate alternative investments in diversified real estate and private equity funds.

Throughout this process, we learned that the couple also had a strong desire to minimize the impact of estate taxes on their children's inheritance. Taking advantage of the then low interest rate environment, we worked with their estate-planning attorney to implement an efficient transfer of assets to grantor retained annuity trusts for the benefit of their children, significantly reducing the children's future estate tax burden.