The Challenge
Perhaps you’ve amassed a large portion of your wealth through an equity based compensation plan or by receiving stock in a publicly-traded company as part of the sale of your business. Maybe you inherited a sizable single stock position from a family member or friend.
These situations could result in too high a concentration of assets in one single investment tying too much of your financial future to the fortunes of one company. This is akin to having “all of your eggs in one basket” potentially endangering your wealth preservation goals.
The Considerations
These concentrated equity positions pose plenty of challenges, and reducing them is easier said than done. There are regulatory considerations, tax impacts, timing issues, and how to reinvest the proceeds. The best overall approach for you will depend on the specific details of the investment and your unique financial situation.
Are your shares subject to SEC Rule 144 or other restrictions? If so, it might be appropriate to demonstrate your selling decisions in advance by filing for a 10b5-1 plan. Perhaps you need to look into a blind trust where a trustee can determine how much will be sold, when, and for what price. This trustee could also employ a variety of hedging strategies to help protect your position.
What if you are unable to sell? Either by choice or legal mandate? You might be able to pledge the stock as collateral on a margin loan and use the loan proceeds to diversify your portfolio.
How about tax considerations, market impacts, and reinvesting the proceeds? Selling such a large position could result in a rather large tax bill and may even impact the price you receive for the stock. Perhaps you could spread the tax bill and impact over time by moving the stock position in to an Exchange Fund, or a Completion Fund.
Do you own a lot of company stock inside of your 401(k) retirement plan? Then you might want to think twice about rolling over your company stock to an IRA. A NUA, or Net Unrealized Appreciation, strategy could be utilized to reduce the total lifetime taxes paid on this investment.
And, let’s not forget about any charitable intentions. What is the most effective way for you to donate all or a portion of your position to a favorite charity? Do you donate the shares outright or create a charitable trust?
The Solution
The strategy or combination of strategies you should employ will depend on the specific details of the investment, and your unique financial situation. The solution is not always straightforward. What is critical is to employ the expertise of professionals such as CPA’s, Attorney’s, and Investment Advisors to develop and implement the strategy that is right for you.
Step 1: Discover
We'll discuss your current situation and objectives to see if we're a good fit.
Step 2: Design
Next, we design a plan using the information we gathered to develop efficient strategies to assist you in reaching your objectives.
Step 3: Implement
A plan only works if you execute it. Let's put it into action to help you work towards your goals.
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Woodmere, OH 44122
