As a successful corporate executive, you have spent the better part of your career helping manage and grow the business on behalf of shareholders and employees—often with little time left over to devote to managing your own personal wealth. Making matters even more challenging is the fact that complicated regular and deferred compensation packages often result in highly concentrated company stock positions that can be difficult to liquidate and require considerable time and planning to unwind.
You need to look across your entire financial picture, including all your corporate benefits such as employer-sponsored retirement plans, deferred compensation packages, and insurance coverage to protect your assets, manage risk and make informed decisions about:
- How much compensation should you defer?
- How can you begin to divest company stock given contractual restrictions?
- Are there strategies that will allow you to lock-in the value of your underlying shares?
- How do you plan for the orderly distribution of retirement assets to minimize taxes?
- How can you best use company-sponsored retirement plans to maximize the benefit to you now and in the future?
Controlling risk when you can’t diversify
Despite the investment risk of having too many eggs in one basket, for many corporate executives diversifying a concentrated stock position simply isn’t a viable strategy. Corporate insiders and those who acquired securities in a transaction that did not involve a public offering are commonly subject to significant legal restrictions regarding the sale of those securities deemed “restricted” or “controlled.” Often, the sale of a highly appreciated stock holding would trigger a large tax liability that you would prefer to defer by maintaining the position as long as possible.
Other potential strategies include exchange funds1, which allow qualified investors to exchange a concentrated position for a more broadly diversified portfolio of stocks without incurring an immediate tax liability, and charitable remainder trusts that offer a means of using your appreciated stock to help further your philanthropic goals, while generating an annual income stream and providing an immediate income tax deduction.
In many cases, however, a staged sale can be orchestrated using a 10b5-1 trading plan. Because these plans establish a pre-determined trading schedule that specifies precisely how many share of stock will be sold and when, and execute those sales automatically, they satisfy most regulatory requirements and mitigate any insider trading concerns.
Staying focused on the big picture
Decisions regarding a concentrated stock position should never be made in a vacuum, but rather as part of a broader holistic assessment of your personal balance sheet—looking at various sources of income including your investments, deferred compensation, executive beneﬁts, retirement/pension plan and Social Security as well as your essential and discretionary expenses.
This approach will allow you and your SunTrust advisor to maximize corporate benefit and compensation plans, integrate them with your investment, retirement, tax, estate planning and risk protection needs, and along the way identify any issues, concerns and challenges you need to address.