Case Study Taxes
Case #1 Capital Gains
A relatively new client called to tell us of an elevated realized capital gain they received for the year, likely exposing them to a large tax bill. After some discussion of its source we discovered it was from a private real estate partnership inherited from the client’s deceased parent. It was also discovered that, upon the death of that parent, the client had not had the tax basis “stepped-up” (upon inheriting most assets there is a step up in the tax basis to prevailing market values). Working with the client’s accountant and general partner of the real estate partnership we were able to get this basis adjustment and save the client a substantial amount in taxes.
Case #2 IRA Beneficiaries
A client of ours with a large IRA account balance, and charitably inclined, had their family trust as a contingent beneficiary after their spouse on their IRA account. We knew the client and their spouse would not likely outlive the funds available to them through income distributions on their IRA. We suggested making their fondest charities at least partial contingent beneficiaries. In this case, instead of the trust paying significant income taxes on the remainder IRA distribution after their death the charities will receive the bequest and, because they are tax exempt entities, will pay no taxes on their respective distributive shares. This effectively allows their remaining IRA balances to avoid being taxed at all and the clients will be happy knowing they were able to get more of their estate into the hands of other similarly philanthropic people.
Case Study Consumer Purchase
Case #3 Elegant Solution
A client with a well-structured investment portfolio called to withdraw money for a new automobile purchase. While that would have been fine, the client informed us that the dealer was offering a 0% financing term loan. We suggested that the client accept the term loan, allow us to use the portfolio cash flows to make the payment for them and avoid a partial liquidation of their portfolio assets. The client never saw a payment coupon and ended up with a new car that very week.
Case Study Loan
Case #4 Bridge Finance
A client with a substantial tax-free bond portfolio had an interest in a commercial real estate investment with a 2-3 year term. We helped him obtain a pledged asset line loan against the portfolio at no cost. The term was indefinite with a renewal every five years and a cost of funds of 30-day Libor plus 2.05%. This was well below his investment return on the bond portfolio, effectively giving him a no cost loan. Additionally, the interest paid was a tax deductible item for him while the portfolio income was largely tax-exempt. The client exited the investment on time with a sizable gain!