Monograph
Executive Planning
The case study presented below is only current as of the date delivered, and it is provided for illustrative and informational purposes only. It is not intended to nor should be construed as a guarantee or assurance of future financial outcomes. The content discussed reflects the specific financial circumstances of the respective client; each client’s individual circumstances are unique, and outcomes will vary. Past performance is not indicative of future results; projections have inherent limitations and may not come to fruition. The statements contained herein do not constitute nor should be construed as personal financial, tax, or legal advice, nor a solicitation of any type. Each client's situation is unique and thus requires individualized financial, tax, and legal advice from a qualified financial professional, CPA, and attorney, respectively. The client situation discussed within reflects that of a current client; such client did not receive any cash or non-cash compensation in relation to this case study. The firm’s disclosures are available here or upon request.
Meeting the needs of a career leader
At Monograph Wealth, we have developed the planning methodologies well suited to meeting the unique needs of the C-suite executive.
The following case study illustrates our approach to managing portfolio diversification, complexities in the wealth structure, strategic management of tax exposure, intergenerational transfers, and mapping resources to meet changing needs.
The Client
Building considerable wealth as an eventual C-suite executive, this client engaged Monograph with his eye on retirement and adequate preparations. As the creating generation of the family wealth and expecting a reduction in compensation upon retirement, this client was risk-averse, hands-on, and highly motivated to develop a plan to enjoy the fruits of labor during retirement. As can be typical for ultra-successful executives, the client’s wealth structure included concentrated stock and a complex benefits package with variable asset terms, structures, and tradeoffs.
The Challenge
The client came to us with assets spread across multiple investment platforms with limited cohesion. As a successful executive of a publicly traded company, restrictions and compliance constraints in exiting the concentrated position required a 10b51 diversification plan.
The Solution
Monograph’s wealth planning system illuminated the degree to which payments from the executive compensation and benefits package could fund the client’s lifestyle in retirement. It also demonstrated the fixed income investments projected to fund annual expenditures until age 100.
The Strategy
The client’s strategy aligned with the client’s risk preferences and financial goals, illustrating their ability to persevere through a significant financial adversity.
To bolster their risk protection, Monograph implemented a 10b51 equity diversification plan and spread the stock sales proceeds across global equities.
By cataloging the clients’ excess total resources, excess liquidity, excess protective assets, and a growing taxable estate, the client began to embrace conversations about wealth transfer. A meaningful step was to shift risk taking activity to benefit Generation 2 (G2). Each dollar of growth held in appropriate transfer entities could be shielded from gift and estate taxes, and the principal could be returned to Generation 1 (G1).
In addition to wealth transfer strategies, the family was able to build a charitable resource pool to positively impact society. Monograph arranged gifting of low basis stock as part of the diversification and income tax reduction plan.
Wealth Transfer Strategies:
GRATs & QPRTs
Grantor Retained Annuity Trusts (GRATs) are useful vehicles for appreciable assets that minimize gift and estate tax liability while also providing a retention of principal to the grantor. Each of the last 10 years, equities were transferred to two-year rolling GRATs, transferring millions of dollars of appreciated securities to G2, bypassing gift and estate taxes. In addition, the client was able to substitute cash for appreciated equity, pushing more appreciable assets to G2, gift and estate tax free.
During adverse markets, the client established new GRATs, and funded them at depressed values, with G2 receiving outsized benefits during the recovery.
During productive markets, Monograph also endeavored to freeze asset gains as they occur at the trust in advance of expiration to lock in intergenerational transfers.
Qualified Personal Residence Trust (QPRT):
The client’s primary and secondary residences represented a significant potential estate tax liability. As such, Monograph worked with the client to establish two QPRTs in which the residences could be discounted and gifted over time to the next generation. Rent payments now serve as added gift tax free transfers.
Despite an official retirement, this client has continued to realize income through a successful private consulting practice.
These liquid resources have provided additional flexibility during times of market volatility and the confidence to capitalize on transfer opportunities during times of distress.
Certain grantor trusts contain asset substitution provisions, enabling G1 to retain low basis assets while transferring high basis assets to subsequent generations. The following describes the substantial, potential economic advantage.
Basis Planning–
For Example: A grantor trust for G2 is funded with a $1 million gift. It is invested and grows to $11 million.
$11 million - $3.7 million (tax on $10m gain) = $7.3 million post-liquidiation value
If a substitution provision exists in the trust, & G1 has the requisite sufficiency, G1 can:
Swap in $11 million of cash to the trust; and
Take back the $11 million of appreciated stock. This “swap” is akin to making a $3.7 million gift to G2 without gift or estate tax.
Basis Planning can be extremely productive providing the client has the resource sufficiency and the advisor has full context.
Ongoing Service
Monograph is also privileged to have all children of the original client household as clients (G2).
All siblings are grown, with own families, needs, and objectives. By having a complete view of the parent generation’s wealth structure and plan, each G2 household can benefit from a clearly defined inheritance cash flow.
One of the three G2 households – which lives internationally – benefited particularly from rolling gifts and GRAT proceeds to enhance its wealth position.
For all three households, Monograph has developed customized wealth plans, provided financial education, facilitated major asset purchases, and helmed their own gifting priorities. Through an effective intergenerational transfer strategy, Monograph provided the entire family with an uplifting experience of shared wealth.
Monograph continues to provide all four households with the following services:
Investment oversight, portfolio management, and iterative wealth plan implementation and adjustments
Quarterly meetings to review outstanding and new priorities, investment performance, and the state of economic and capital markets
Manage inter-household gifting and transfers
Execute charitable giving priorities
Coordination of the suite of service providers within the virtual family office
Financial education