Understanding the tax implications of an investment

When we met Roger* he was running a small insurance company that specialized in insurance for board directors. Since he founded the company fifteen years earlier, it had grown substantially. Looking to downshift his career and pursue other interests, Roger eventually decided to sell the company to a larger publicly traded insurer.

Roger came to us to discuss the tax implications of selling his business, which he rightly suspected could be significant. Because he started the business from scratch, Roger's cost basis on his company's shares was close to zero, implying significant capital gains taxes if he sold those shares.

We explored several scenarios to help Roger deal with the capital gains issue. Ultimately we recommended that, rather than selling his company directly, he merge it into the larger insurer and exchange his shares for stock in the larger company. We then worked with Roger to opportunistically sell off these shares over the next several years to both spread out and minimize the gains he'd have to pay on them. Using options, we helped him protect the value of the shares he continued to own.

Additionally, we established a charitable remainder trust that married Roger's philanthropic goals with his tax minimization objectives: by gifting $15 million worth of stock to the trust, Roger was able to offset a large portion of capital gains he owed one year while making a significant contribution to an organization he'd long wanted to support.

Our work with Roger began with an exploration of the tax implications of an investment and took us down a path that ultimately enhanced his entire financial picture.

* Names and some details have been changed to protect client confidentiality. Your particular situation can differ based on your unique needs and objectives.