Supervising Concentrated Holdings
Many successful executives and entrepreneurs find themselves with a disproportionate amount of their wealth in a single stock due to a buy-out or success in running a publicly traded company. While this is a powerful way to create wealth, it creates the risk that a problem with the stock can endanger the client’s entire net worth. Altavista is experienced in techniques that empower investors to minimize the downside risks of these holdings while minimizing taxes:
- Option Collars: Through the options market or negotiation with an investment bank, we can limit the downside risk of a concentrated holding with little or no cash outlay.
- Charitable Remainder Trusts: When a client holds concentrated low-cost basis holding and has an interest in making gifts to charity now or in the future, charitable remainder trusts provide three opportunities to clients. First, sell and diversify the holding with no immediate capital gains tax consequences. Second, secure a substantial income stream. Third, receive a charitable tax deduction.
- Structured Equity: After placing a protective put option underneath the concentrated position, money is borrowed against the stock at attractive rates. We use the proceeds of this loan to construct a diversified portfolio. As tax losses are harvested from the diversified portfolio, we take offsetting capital gains from the concentrated position. Over time, the position can be substantially diversified with minimal capital gains.