This case study is based on a real client. The names and some specific details have been removed to preserve their confidentiality.
A retired couple are inheritors of stock in a large publicly held corporation. The stock eventually totaled some 35% of their net worth and had a very low-cost basis. These and all their other assets were held in a major domestic bank trust department. The bank served as both trustees and asset managers. They offered no integration of tax consequences of estate and trusts. and the bank trust unfortunately lacked any research capacity on the inherited securities. Their solution to manage the client's assets was limited to a generic offering of sixteen boilerplate portfolios of non-proprietary mutual funds, stocks, and exchange traded funds, all of which were underperforming their asset class peers. And they came with high bank trust fees.
To propose a multi-phase solution to bifurcate the inherently expensive and conflicting trust and investment management roles of the bank.
To examine and expand estate sheltering of estate assets.
To segue the client's portfolios out of generic pooled trust investments.
To generate higher current income while managing the transition from a 40-year deflationary cycle to a long-term inflationary cycle.
To mitigate concentrated position risk while minimizing tax impacts.
First, we stewarded a national search for an independent trustee, matching the clients with a more aligned and tax friendly trust domicile. We extricated their portfolio from misallocated matrix of assets, offsetting concentrated position with the predecessor bank generated legacy losses. As the clients were of retirement age, we exited the inappropriate and risk prone long term bond funds the bank used as generic diversification. We utilized industry research to build a personally tailored portfolio aligned with present and multi-generational needs. This involved a move out of ETFs and mutual funds and into a portfolio of individual securities. With an eye toward legacy estate inheritance, we reconfigured the trust asset composition to take advantage of the 2021 Spousal Lifetime Access Trust window.
The new portfolios generated significantly higher tax advantaged current income, effectively tripling annual cash flow on the same asset base while hedging inflationary future potentialities. By using the 2021 Spousal Lifetime Access Trust window we sheltered an additional eight-figure dollar amount (over $10M) from the eventual estate taxation. We lowered the clients overall fee structure by 50%. And most importantly, we continue to serve as a clearinghouse and coordinator developing systemic financial models while identifying and aligning legal trust, tax advise resources for the clients' benefit.
Disclosure: The outcome of any financial advice given to a client is unique to each customer. Nothing relating to this client's case is indicative nor a guarantee of future investment performance, tax savings, or any other financial benefits.