Managing Concentrated Stock Wealth 2e – An Advisor′s Guide to Building Customized Solutions

Foreword xiii
<p>Acknowledgments xvii</p>
<p>Introduction xix</p>
<p>Getting the Priorities Straight xix</p>
<p>Knowing the Client xxi</p>
<p>Chapter Note xxiii</p>
<p>PART I: SALES</p>
<p>CHAPTER 1 Constraints on Managing Concentration Risk 3</p>
<p>Taxes 4</p>
<p>Pre–IPO Illiquidity 8</p>
<p>Post –IPO Lockups and Other Market Considerations 8</p>
<p>SEC Constraints, the Sarbanes –Oxley Act, and Dodd–Frank 10</p>
<p>Notice and Reporting 10</p>
<p>Controlled Sales of Founder Stock 11</p>
<p>No Trading on Material, Nonpublic Information 11</p>
<p>No Short–Swing Profits for Corporate Insiders 11</p>
<p>No Favorable Financing for Senior Executives 12</p>
<p>Employment/Career Constraints 12</p>
<p>Psychological Barriers 14</p>
<p>Chapter Notes 17</p>
<p>CHAPTER 2 Sale and Diversification 19</p>
<p>Overcoming the Tax Constraint 21</p>
<p>Overcoming Psychological Barriers 24</p>
<p>ESOP Sales 25</p>
<p>Pre–IPO Considerations 26</p>
<p>Let s Just Sell It 27</p>
<p>CHAPTER 3 Coordinating Long Shares with Stock Options 29</p>
<p>Employee Stock Options 30</p>
<p>Taxes on Options 32</p>
<p>Exercise Strategies 35</p>
<p>Swapping 40</p>
<p>Option Leverage 40</p>
<p>Long Shares: No Leverage 42</p>
<p>Ordering Rule 42</p>
<p>Chapter Note 43</p>
<p>CHAPTER 4 Diversification Sales and Deferred –Compensation Plans 45</p>
<p>Deferred Compensation: Then and Now 46</p>
<p>Sweetening the Pot 47</p>
<p>Risks and Returns 48</p>
<p>The Rabbi Trust 51</p>
<p>Investment Options 52</p>
<p>The Benefits of Deferral 52</p>
<p>The Coin s Two Sides 54</p>
<p>CHAPTER 5 An Out for Insiders 55</p>
<p>SEC Rule 10b5–1 Plans 56</p>
<p>Third –Party Discretion 57</p>
<p>Formula Plans 57</p>
<p>Short –Swing Constraints 58</p>
<p>Sales During Retirement ]Plan Blackout Periods 58</p>
<p>Plan Logistics 58</p>
<p>Prearranged Plans: Often a Corporate Requirement 59</p>
<p>Appendix XYZ Co. Nondiscretionary</p>
<p>Rule 10b5 –1 Sales Plan 59</p>
<p>CHAPTER 6 Restricted Stock: Tackling Temptation 67</p>
<p>Managing the Section 83(b) Election 68</p>
<p>All That Glitters 69</p>
<p>Risk of Forfeiture 71</p>
<p>Opportunity Cost 72</p>
<p>A Second –Best Strategy 74</p>
<p>Seeing the Light 75</p>
<p>Complications for Insider 76</p>
<p>The Right Fit 77</p>
<p>Chapter Note 80</p>
<p>Appendix 80</p>
<p>PART II: GIFTS</p>
<p>CHAPTER 7 Gifts to Family 85</p>
<p>Transfer Taxes 85</p>
<p>Income Tax Leverage 89</p>
<p>Special Rules on Employer Stock 90</p>
<p>Transfer Structures 90</p>
<p>Gifts Under the Uniform Transfers to Minors Act 91</p>
<p>Minor s Trust 91</p>
<p>Intentionally Defective Grantor Trusts 92</p>
<p>Family Limited Partnerships 94</p>
<p>Gaining Psychic Distance 95</p>
<p>CHAPTER 8 Nonqualified Stock Options: Gifts to Family 97</p>
<p>Investment Leverage 98</p>
<p>Tax Leverage 99</p>
<p>Timing and Valuation 100</p>
<p>CHAPTER 9 Gifts to Charity 105</p>
<p>Tax Savings 105</p>
<p>The Cost of Charitable Gifts 107</p>
<p>Special Income Tax Considerations 109</p>
<p>Loss Positions 109</p>
<p>Short–Term Gains 109</p>
<p>Seasoned Incentive Stock Option Stock 110</p>
<p>Low –Basis Shares 110</p>
<p>IRA Assets 111</p>
<p>Tangible Personal Property 111</p>
<p>Structures for Charitable Gifts 112</p>
<p>Direct Gifts 112</p>
<p>Donor–Advised Funds 112</p>
<p>Private Foundations and Supporting Organizations 114</p>
<p>A Word of Caution 115</p>
<p>Appendix: Key Characteristics of Charitable Vehicles 116</p>
<p>CHAPTER 10 Charitable Trusts 119</p>
<p>The Charitable Remainder Trust 120</p>
<p>Tax Requirements and Opportunities 121</p>
<p>Tax Deferral 122</p>
<p>Coordinating a CRT with the Client s Financial Plan 123</p>
<p>The Charitable Lead Trust 125</p>
<p>CHAPTER 11 Nonqualified Stock Options: Gifts to Charity 129</p>
<p>The Charitable Gift 130</p>
<p>Mismatches of Valuation and Timing 131</p>
<p>Why Bother? 132</p>
<p>Charities Close to Home 133</p>
<p>The Wealth Effect 134</p>
<p>PART III: RETENTION</p>
<p>CHAPTER 12 Margin: An Acquired Taste 137</p>
<p>Margined Diversification 138</p>
<p>Logistics 138</p>
<p>Margin and Liquidity 140</p>
<p>Reduced Risk 141</p>
<p>Enhanced Return 141</p>
<p>The Unexpected 145</p>
<p>Margin Calls 147</p>
<p>Chapter Notes 148</p>
<p>CHAPTER 13 Managing Concentration Through an Index Proxy 149</p>
<p>Tax Management 149</p>
<p>The Index –Proxy Account 150</p>
<p>Managing Concentration Risk 151</p>
<p>Limitations and Drawbacks 153</p>
<p>Asset –Class Limitations 153</p>
<p>Tracking Error 153</p>
<p>Higher Expenses 154</p>
<p>Deferred Tax Liability 154</p>
<p>CHAPTER 14 Exchange Funds 157</p>
<p>By Invitation Only 157</p>
<p>Costs and Benefits 158</p>
<p>The Future of Exchange Funds 160</p>
<p>Stock Protection Funds 160</p>
<p>Chapter Notes 162</p>
<p>CHAPTER 15 Derivatives and Hedges: Buying Time 163</p>
<p>The Versatile Hedge 164</p>
<p>Selling Calls 164</p>
<p>Changing a Mindset 165</p>
<p>Buying Puts 168</p>
<p>Collars 170</p>
<p>The Put–Spread Collar 171</p>
<p>Tax Consequences of Derivatives 171</p>
<p>The Forward Contract 172</p>
<p>A Competitive Market 174</p>
<p>CHAPTER 16 Powers of Concentration 175</p>
<p>Embracing Risk 175</p>
<p>Corporate Stock–Holding Requirements 177</p>
<p>Stock Options: The Decision to Hold 179</p>
<p>The Golden –Parachute Constraint 180</p>
<p>Capturing Dividends 181</p>
<p>Change in Tax Rates 181</p>
<p>Incentive Stock Options and the Alternative Minimum Tax 182</p>
<p>Gifts of Options 183</p>
<p>Charitable Lead Trust 184</p>
<p>Company Stock in IRAs or Qualified Retirement Plans 184</p>
<p>The Control Premium 186</p>
<p>Chapter Note 188</p>
<p>Afterword 189</p>
<p>About the Author 193</p>
<p>About the Contributing Author 195</p>
<p>Index 197</p>