Even the most successful tech founders and executives need help maximizing their financial situation. At Solidarity Wealth, we provide wealth management services to a select group of founders, entrepreneurs, and executives seeking to provide financial confidence for yourself and future generations.
Through our distinctive approach and deep level of care, we help our clients navigate the unique challenges of significant wealth and better predict their financial future. That includes identifying and clarifying life goals, mitigating their tax liability, and structuring their estate and investment plan. In many cases, this work is done before there is any meaningful liquidity for our investment team to manage. But don’t just take our word for it! Here is an example of one tech executive we helped maximize his company’s equity and plan for the next stage of his life.
This client is a married couple in their 40s with four kids. The husband is a C-Suite executive at one of those “unicorn” software companies that was experiencing exponential growth. Since he joined the company early on, he received a significant equity compensation package that makes up a substantial portion of their net worth.
Like many of our clients, this couple had successfully helped build a company and were now poised to realize the fruits of their labor. While they were savvy about their personal finances and the markets, they weren’t sure how to maximize their potential wealth with their equity compensation.
Topics like taking full advantage of stock options, giving to philanthropic causes, minimizing taxes, and ensuring a family legacy were variables they had never dealt with before, and they didn’t want to make a costly mistake.
They also wanted to achieve all this in the context of their shorter-term goals as well as the larger, longer-term goals they had in mind. That included creating a reliable income stream to make work optional, potentially starting a company of their own, and navigating the family dynamics that arise with large amounts of wealth.
How We Helped
This couple is a great example of the challenges many families we work with face. Working at a rapidly growing company while raising a young family has enough challenges on its own. When you add in the complex tax treatment of equity compensation, unique investment options, and conflicting advice from family and friends, it commonly becomes too much to do all on your own.
The first thing we did was inventory all their assets. This included their bank accounts, investment and retirement accounts, equity compensation, and their paid-off home. The most extensive deep dive was spent on the equity compensation package, specifically by reviewing their grants, the company’s valuation, and the company’s Grant Agreement.
While these aren’t popular topics discussed in personal finance circles, we have extensive experience working on these issues. Because of that expertise, we were able to develop an Options Exercise Plan that included our analysis as well as recommendations. Based on the specifics of the company and an impending increase in value in the next 409A valuation, we determined that the couple should exercise the husband’s vested options as soon as possible.
We also discussed two different types of options, incentive stock options (ISOs) and non-qualified stock options (NSOs). Specifically, we highlighted the difference as it relates to their tax treatment and how to properly plan for them.
Another important area we addressed was in finding outside experts, like a CPA and estate planning attorney, to assist us with this process. We were able to recommend a number of professionals to interview and, once hired, held a “meeting of the minds” to ensure that everyone understood our client’s long-term plan and were working harmoniously to achieve their goals. As different financial events occurred (like partial liquidity events), we continued to bring the team together to ensure all aspects of the tax, estate, and financial planning were completed.
The last area important to mention is utilizing more advanced tax-planning opportunities. While it isn’t appropriate in every situation, we recommended doing an analysis of whether their shares qualified for something called Qualified Small Business Stock (QSBS). In conjunction with our company’s in-house attorneys, a QSBS memo was created and made available to all shareholders informing them that they could potentially qualify for QSBS.
Why is that so important? Because Qualified Small Business Stock allows certain shareholders significant tax advantages when they sell their shares, even if they have ample gains. The specific tax advantage depends on a shareholders length of time at the company, as well as how long they held the shares. And to meet QSBS qualifications, the requirements are rather restrictive. Yet when done in the right situation, in conjunction with the proper professionals, it is a powerful and significant way to save money on taxes that can instead be used to reach your financial goals.
After creating and implementing our plan together, we were able to maximize the wealth that this couple had created while avoiding costly mistakes, which allowed them to achieve their philanthropic and professional goals.
Our focus on taxes minimized what was paid to Uncle Sam, while our usage of a Donor-Advised Fund increased what was given to charitable causes. At the same time, we were also able to counsel them on how to “parent amidst prosperity,” i.e., defining for their family what it means to be good stewards of wealth, and having early conversations with the older children around personal finances—helping to make sure they don’t fall for the potential harm that large amounts of money can cause.
While the journey is not yet over, this couple is confident in their financial stability, educated to know exactly how and why their planning was implemented, and focused on the most important thing in life: empowering their children to succeed them as good stewards of the newfound family wealth.
How We Can Help You
If you are looking to maximize your company equity, while lowering your taxes and reaching your financial goals, we’d love to help. You can reach out to us at email@example.com or call 385-374-1665 to schedule a discovery call.
Jeff McClean is a co-founder, partner, and wealth advisor at Solidarity Wealth, a privately held, independent wealth management firm that serves as a multi-family office to some of the Mountain West’s most successful families, technology entrepreneurs, and executives. He specializes in helping clients navigate the unique challenges of significant wealth and better predict their financial future.
As a former tax and estate planning attorney, Jeff is uniquely qualified to advise clients on their overall wealth to help them understand how the pieces of their financial puzzle fit and work together to meet their goals and build the best plan for their future. He values building personal relationships with clients and offering recommendations as a trusted partner, focusing on helping them grow in their financial confidence and freedom to choose their path.
Jeff holds a bachelor’s degree in accounting from Brigham Young University – Idaho and a Juris Doctor with honors from the University of Texas School of Law. Outside of work, he is a huge sports fan and enjoys spending time with family, golfing, and skiing. He also serves as President of the Salt Lake Estate Planning Council and is a frequent speaker on tax and estate planning topics. To learn more about Jeff, connect with him on LinkedIn.
Solidarity Wealth is a registered investment adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Solidarity Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Solidarity Wealth unless a client service agreement is in place.