Being the trustee of legacy wealth is an enormous responsibility. Our client, Scott, felt the full breadth of that obligation. He and his sisters are financially dependent on the stability and growth of the assets as their sole source of income. Scott and his two sisters – one of whom has special needs – rely on the health of their portfolio to maintain their standard of living. Yet the family’s portfolio faced a perilous concentration risk, with nearly 47% invested in technology stocks. While Scott was aware that the portfolio was highly concentrated in the technology sector, he did not fully appreciate the magnitude of the issue. He was also deterred by the prospect that reallocating his portfolio would entail the realization of substantial capital gains.
Although Scott was hesitant to make significant changes to the legacy structure of the portfolio, we knew that it was the responsible and necessary thing to do to serve the family well. So, when the family’s financial advisor brought us in to help, we turned our attention toward creating a detailed multi-year transition plan. Recognizing the five figure cash withdrawals the family made each month to accommodate their living expenses, our goal was to help them maintain purchasing power and also achieve growth beyond just beating inflation and taxes. Since technology stocks had dramatically declined in the prior period, our plan focused on eventually lowering risk by advising the tactical sale of some holdings while trying to limit the capital gain tax. Through numerous meetings and presentations, we earned Scott’s trust, and consequently won the business away from the private bank that had been managing the family’s portfolio. We were able to help Scott better appreciate the significant risks inherent in the legacy holdings of the portfolio. By clearly walking he and his one sister, also a trustee, through a detailed transition plan, we demonstrated a clear path for going from point A to point B. We were also able to show the trustees that it was possible to transition the portfolio over the course of several years, thereby taking advantage of both market opportunities and deferring the realization of some capital gains taxes on the low basis positions.
By recognizing and responding to the red flags we saw in the legacy portfolio construction, we were able to help this family make a gradual transition to a portfolio with less risk. Eventually, as technology rebounded, we sold more shares. There was a further bonus as the family’s investments are now philosophically better aligned with their deeply-held moral values. Most recently, we helped Scott’s sister obtain financing for a challenging real estate transaction, and the trustee’s special-needs sister is continuing to get the cares she needs.
*Some details have been changed to preserve client privacy.