Case Study

Preserving Your Hard-Won Assets With Financial Expertise

Preserving Your Hard-Won Assets With Financial Expertise

With her business growing rapidly, the founder of a biopharma company knew she needed guidance on her personal finances. She wanted to better understand the complex ownership structure of her assets and how that affected her personal wealth.

Careful guidance from a wealth advisor soon set her on the right course.

First, they looked together at the makeup of her equity holdings—including restricted stock, non-qualified stock options, incentive stock options and founder shares—and reviewed the tax implications associated with each form of ownership.

The wealth advisor then walked the founder through a number of strategies to quantify the benefits and risks of exercising her options or holding them.

With new insight into her wealth, she could see her full portfolio on one page. With that clear picture, she created a strategic wealth management plan.

Selling? Not so fast 

With the guidance of her wealth advisor, the founder learned the implications of selling versus holding her restricted stock, and of exercising her options versus not exercising them.

She had been thinking of selling her qualified small business stock (QSBS) to help her daughter buy real estate. But after consulting with her wealth advisor, they recognized that selling these shares before meeting the five-year holding requirement would deny her a significant benefit in capital gains tax. Holding QSBS for the full five years would qualify for a 100% exclusion from capital gains tax, up to the greater of 10 times her basis in the stock, or $10 million—a significant realization.

 Smart moves with trusts

The founder also wanted to know how to provide for the future of her daughter, her two sons, and her grandchildren. With the help of her wealth advisor, she learned exactly what assets she held across her entire portfolio, and in what quantities, so she could explain her portfolio to her children. She then worked with her attorney to update her will to reflect her updated financial picture.

Working with the advisor also revealed the benefits of setting up a revocable trust, including keeping assets outside of public probate proceedings at the time of death. Doing so gave her a level of privacy, because most of her assets, including her company holdings, became titled in the name of the revocable trust.

With her wealth expected to grow with a future sale or acquisition, she also considered an irrevocable trust.

Gifting appreciable assets to a trust, she learned, would remove these assets from her taxable estate. An irrevocable trust would also help her transfer wealth to her family with more tax efficiency: an exemption from generation-skipping tax would protect the assets from estate taxation in her children’s estates.   

New wealth means new thinking

By taking the initiative to find valuable guidance, the biopharma founder saw her financial assets in an entirely new light—a perspective she shared with her children. Her discoveries with her wealth advisor helped her make more effective financial decisions. She also created a better approach to transferring wealth as she anticipated that the value of her company would increase even further in the future.

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