Client Snapshot
A female Vice President at a multinational energy corporation in her early 50s knew she had blind spots when it came to her managing her extensive financial matters, including her complex executive compensation plan and its implications on her income taxes. Extremely talented and driven in her career and field, she recognized the need for professional wealth management expertise when a few, preventable, financial issues arose. Wanting to be proactive in avoiding irreversible mistakes, she sought out an expert to provide answers to her immediate needs, and found a partner that offered a holistic wealth management solution, guiding her on technical topics and fulfilling personal objectives.
Situation and Outcome
With her time dedicated to her career and her focus on her important work in the energy industry, the client did not have enough bandwidth needed to attend to her in-depth financial matters. When her company’s stock started to fluctuate and an unexpected tax bill arrived, she began to panic and took that as a sign to seek professional guidance and turned to Wescott to ensure that she and her family would be secure in the long term. Wescott worked with her to understand her full financial picture, which included providing planning advice for investment, tax, estate and family education need.
From an investment standpoint with her executive comp plan, the advisory team soon discovered that the client had a significantly larger position in her employer stock than she had thought. She had Restricted Stock Units (RSUs), market share units (MSUs) and performance share units (PSUs) that were tied to the performance of the company and had resulted in a significant buildup of employer stock over time. The client had also worked at the energy corporation for her entire career, meaning some of her stock shares were 90% appreciated.
This investment guidance also uncovered a need for a solid tax plan to help realize her personal and financial goals. Her Wescott Advisory Team helped her understand the associated taxes she might encounter when her stocks fully vested, including capital gains taxes and Net Investment Income Tax. Knowing that the client’s second husband was 15 years older than her, Wescott recommended that the client transfer some of her shares to her husband in the likelihood that she would outlive him. Since her husband did not have any children, the shares would be transferred back to the client when he passed and would receive a step up in basis and significantly reduce any potential capital gain taxation.
Another piece of the client’s financial puzzle included estate planning and family education, because of her expressed interest in helping her daughter financially. The client’s first hope was to help her daughter buy her first home via a stock gift. Since her daughter was in a lower tax bracket, the capital gains tax would be minimal, and the transfer would help to reduce the client’s estate.
The client also wanted to pass assets down to her daughter over time. Due to the fact that her daughter lived simply, with very limited financial knowledge, the client was concerned that inheriting significant wealth would be overwhelming and potentially burdensome. A family meeting was set-up by the client’s Wescott Advisory Team to help educate the young adult, ensuring both parties were aligned with the plan. In addition, she worked with Wescott to establish an annual gifting plan to provide her daughter with financial stability while at the same time minimizing her own income tax liability.
Lessons Learned
Managing and optimizing complex executive compensation plans, can quickly become overwhelming. This is due in large part because these plans often bring to the surface the need for holistic wealth management planning, including complicated tax and estate planning. At Wescott, we take great pride in helping our clients with the totality of their financial lives. By working alongside her Wescott advisory team, this client gained peace of mind and clarity. Her advisor team ensured that she had all the data and essential financial details at hand to make well informed decisions about her executive comp plans to implement. This knowledge empowered her to maximize her resources and align them with key life and financial goals – removing any potential blind spots.
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