Case Study

The sale of a business interest leads to wealth transfer opportunities

The Challenge

Mark and Michelle were referred to our group by a business contact that was very familiar with our planning-based approach. For years, Mark had worked for his family’s general contracting company, but he was now ready to retire. He also retained a large interest in a privately held refining company, a personal asset that he was considering selling upon retirement.

When we first met with Mark and Michelle, we took them through our cash flow financial planning process. We helped them map out a strategy that would allow them to comfortably maintain their standard of living based on their current means. By doing so, we determined that they had enough liquid assets to maintain their modest lifestyle throughout retirement, but could not afford to substantially overspend nor transfer any wealth to heirs during their lifetime.

Eight months after our relationship began, Mark found a buyer for his refining company and decided to sell his interest for a significant sum. This windfall substantially increased the couple’s liquid net worth and would allow them to pursue their ultimate goal of sharing wealth with the people and charitable causes they cared for most.

Following the sale, Mark and Michelle wanted to explore ways to preserve the wealth they had accumulated, efficiently pass assets to future generations, and fund college educations for their many grandchildren.

The Strategy

With their circumstances about to change, we saw an immediate need to update Mark and Michelle’s financial plan, which we reviewed with them, their accountant and estate planning attorney. Collaborating closely with our clients and their other advisors, we reassessed their needs and goals in light of their considerable increase in wealth. Together, we constructed a cohesive strategy that would maximize each piece of their financial picture.

Partnering with our trust and estate planning specialist and the clients’ attorney, we crafted an appropriate legacy plan that would maximize their allowable lifetime gifts and federal estate tax exemptions.

To  address Mark and Michelle’s charitable inclinations, we set up a donor advised fund in the year of the business sale. This helped fulfill their desire of making generous philanthropic donations while allowing them to take a tax deduction to help offset the large liability stemming from the sale.

We also recommended that they gift assets each year to their many heirs. This technique would permit them not only to pass on wealth during their lifetime, but would also utilize their allowable annual gifts and reduce their overall estate. Based on our suggestion, Mike and Michelle decided to make cash gifts each year to their four grown children and contribute to college savings plans for each of their 14 grandchildren.

Based on the revised plan, our team restructured the couple’s personalized investment policy to remain aligned with their conservative risk appetite, but also to produce enough income to meet their updated annual cash flow and gifting needs.

Lastly, we established a large securities-backed line of credit to fund the remodeling of their home without disrupting principal or cash flow generation of the investment portfolio.

Our Continuing Relationship

Mark and Michelle were confident that they could not only maintain their lifestyle, but also provide for future generations and their philanthropic interests. They have been consistent with their wealth transfer plan and will continue its implementation for the foreseeable future.

This case study is provided to illustrate the types of services Parcion can provide and the importance of our focus on individual needs and goals. The actions described do not constitute investment advice or any recommendation; we provide advice only to our clients. While the story is based on an actual client experience, it describes Parcion’s view of that experience. Not all clients experience positive results from our planning services and past performance is never a guarantee of future results.