Case studies

A family legacy planning case study

The “What if”?

What if a couple in their early 50s came to us with a net worth of more than $20 million, two teenage children, and a well-diversified investment account containing dividend-paying stocks generating $650,000? (Many holdings were low-basis stock gifted years earlier.) What if the couple wanted to leave a legacy for their two sons, wanted the freedom to reach into the principal if necessary, and wanted to mitigate future taxes?

Our Strategy

We would explain the full scope of the tax impact at their passing. We would also explain that with well-guided portfolio management, it was possible to grow the account.

We would collaborate with their attorney to establish an irrevocable life insurance trust (ILIT) with their two sons named as beneficiaries. The ILIT would be the owner of a $20 million survivorship life insurance policy. Low basis, low dividend-paying stocks would be gifted to the trust, then sold and repositioned to raise the $2.8 million in cash necessary to gift to the ILIT. The $2.8 million single premium would then be used to buy a $20 million policy that guaranteed the death benefit to the age of 121. No additional premiums would be necessary.

This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. This is not a recommendation and you should consult with your financial advisor for advice based on your personal situation, financial goals and objectives. Dividends are not guaranteed and will fluctuate. Diversification does not guarantee a profit nor protect against loss. Raymond James does not offer tax or legal advice. Please consult the appropriate professional before making any decision that may affect your tax or legal situation.

A corporate executive case study

The “What if”?

What if an executive of a prominent company came to us to plan for his anticipated retirement in three years and had accumulated significant assets in a 401(k) plan, company stock and deferred compensation. What if he held a large concentration of company stock and a 401(k) plan and did not want to be subjected to a high tax bill? What if he wanted to make sure he could maintain his accustomed lifestyle through retirement? What if he also wanted to leave a legacy for his family and favorite charities?

Our Strategy

We would develop a cash flow analysis and weigh several compensation payout scenarios. We would also consider tax-efficient strategies and draw down the income he would need to maintain his lifestyle once retired.

We would also address the issues associated with the extensive company stock options he had accumulated. Our advanced planning would include valuating his options while adhering to mandatory holdings policies, looking at hedging opportunities, and exploring ways to reduce or eliminate the alternative minimum tax.

We would determine the appropriate mix of assets necessary to help him achieve his goals and meet his retirement income needs. We would perform portfolio stress-testing to illustrate the impact that certain events may have and help him determine his appetite for risk.

With his knowledge and approval, we would assume the discretionary management of his core assets in order to effectively manage them, implementing strategies such as tactical hedging opportunities based on market conditions and laddering a tax-free municipal bond portfolio designed to provide income and liquidity.

With the goal of mitigating the erosive effect of market downturns, we would implement a strict risk management discipline with a sell philosophy designed to prevent wealth destruction.

To meet his goal of leaving a legacy for his family and favorite charities, we would work with his estate attorney, while also helping to ensure proper titling of his accounts, assets and beneficiary designations, and mitigating the effects of estate and transfer taxes.

We would aggregate his accounts into one convenient access point online, create a secure area for storage of important documents, and maintain continuous upkeep of records and financial data.

This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of capital. This is not a recommendation and you should consult with your financial advisor for advice based on your personal situation, financial goals and objectives. Diversification does not guarantee a profit nor protect against loss. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Raymond James does not offer tax or legal advice. Please consult the appropriate professional before making any decision that may affect your tax or legal situation.

A multigenerational non-qualified pension case study

The “What if”?

What if a couple in their 60s wanted to gift $1 million to help ensure that their son and grandson would have income for life?

Our Strategy

We would execute a multigenerational trust designed to provide income to their son during his life if needed, and fund it with $1 million in cash. It would accumulate tax deferred for two generations. At the son’s passing, $11,123,582 withdrawal value would pass free of estate taxes in his estate. Income to the grandson over his lifetime could stretch to $30,993,192.

This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary. This is not a recommendation and you should consult with your financial advisor for advice based on your personal situation, financial goals and objectives. Raymond James does not offer tax or legal advice. Please consult the appropriate professional before making any decision that may affect your tax or legal situation.