Taxable Wealth

Financial Advisor San Diego, CA

Business Owner Case Study

Case Study #1 

Client: Business Owner Overweight to U.S. Economy

A majority of business owners already have enough exposure to the U.S. economy. So when some financial advisor proposes to invest their investable assets (their earnings from their business) into a plain-vanilla portfolio, it makes us question whether they realize they are doubling down on this risk. During an economic downturn, not only will their business feel it, but their portfolio will too. That doesn’t sit well with us, and we find that once our business owner clients understand this, it’s the last thing they want to do with their hard-earned cash. They prize liquidity. With the projected assumption that one day their business will be a larger source of liquidity (and then can be reallocated back into equities), we focus on building up a liquidity fund, optimizing for yield and taxes. Then, and only then, do we start adding diversified/alternative assets with different return streams to our client’s balance sheets. This is just the first way in which we differ from the typical advisory firm for our business owner clients. We offer a tailored service menu that covers all aspects of their financial lives. From taxes and cost-cutting regarding the fees they’re currently paying, to risk management/insurance analysis, liability/lending management, business succession, and estate planning, we become their thinking partner concerning their non-business, financial lives. 

We integrate value services tailored into plans specifically for business owner clients, including the following:

  1. Ongoing, year-round tax planning: If your financial advisor has never asked to see your tax return, you need a new financial advisor.
  2. Balance sheet development
  3. Cash flow analysis and planning
  4. Business-related planning:
    • Entity selection and structuring
    • Recapitalization
    • Cost segregation review
    • Tax planning
    • Shareholder benefit optimization strategies
    • Corporate financing consulting and business lines of credit
    • Corporate cash management solutions
    • Real estate solutions including self-rental strategy for business owners
    • Employee benefits consulting including some “out of the box” ideas
    • Retirement plan consulting and design
      • 401(k) profit-sharing plans
      • Safe Harbor 401(k) profit-sharing plans
      • Non-qualified deferred compensation plans
      • SIMPLE IRA
      • Solo 401(k) or SEP for owner-only firms
      • Personal defined benefit plans
      • Succession and exit planning
      • Buy/sell agreements
      • Insurance planning
  5. Investment advisory/management services:
    • Global equity, direct indexing tax managed separately management accounts with securities backed lines of credit attached for liquidity management needs
    • Tax advantages alternative investment strategies: New return stream + tax losses to offset other income/gains
    • Real estate investment analysis and implementation thru:
      • Owner-occupied commercial for the business
      • Local rental properties for college funding goals
      • Securitized out-of-market properties
      • Institutional real estate funds that focused on other sectors of the real estate market (rather than more multiple family, maybe we add commercial office and industrial and forest and timberland focused holding.
  6. Liability management and analysis
    • Securities-backed lending programs
    • Mortgage consulting
    • Investment portfolio lending programs
  7. Educational planning for children’s high school and college (and beyond)
  8. Insurance planning and implementation
    • Life
    • Disability
    • Long-term care
    • Property and casualty
    • Health insurance/Medicare and HSA planning
  9. Estate plannin
  10. Multi-generation planning
  11. Charitable planning
  12. Other niche services
    • On-demand notary
    • Paper-shredding services
    • Financial planning for adult children

Case Study #2 

Client: Business owner client with limited liquidity outside of the business (whom some financial advisors might shun as a client due to lack of “manageable assets”)  

Recommended Action Plan

  1. Liquidity Fund: We recommended moving cash earning nothing in a bank savings account to a FDIC-insured high-yield savings account (up to $25 million in FDIC insurance) to at least earn something but serve as the household operating account and emergency fund.
  2. Retirement Portfolio: We recommended the following:
    • A 401(k) for both husband and wife as she helps in the business regarding admin and networking
    • Funding up to $56k each per year
    • Target value at retirement of $750k each, invested 100% in low-cost stock funds
    • Hiring their children for minor clerical work or as models for the company website or videos, and funding their Roth IRAs each year
  3. College Funding: In addition to 529 college savings accounts, we analyzed and advised on the purchase of single-family home rental properties purchased for each child’s college education funding goal, with accelerated mortgage paydowns to match when the children would be entering college.
  4. After-Tax Liquid Investment Portfolio: For diversification, we advised the client to start to slowly build some exposure to the stock market and other non-real estate return streams through an initial allocation to:
    • Tax management, direct index SMA with a securities-backed line of credit attached to fund real estate deals when necessary
    • Tax-advantaged alternative investment strategies focused on harvesting alternative risk premia and tax losses (both ordinary income and capital losses)
  5. Real Estate Portfolio
    • Self-Rental: We carefully reviewed the tax ramification of the clients purchasing a small office building to run their business out of to attain their goal to “stop paying rent” and instead pay off a mortgage on their personally owned office building.
    • We advised on the development of a real estate holding company for any rental properties that the clients wanted to purchase for tax-preferred income.
      1. XYZ Enterprises, LLC (real estate holding company, pass-through)
      2. Residential and locally focused
    • We added an allocation to an outsourced institution real estate portfolio which included:
      1. Globally, publicly traded REIT index funds
      2. Private real estate index funds (NCREIF ODCE focused)
      3. Crowdfunding deals
      4. Direct private funds
      5. Local private partnerships
  6. Estate Planning
    1. We advised on strategies to get the assets outside of their estate to their children utilizing the following vehicles:
      1. Qualified Personal Residence Trust (QPRT) holding their personal residence
      2. Irrevocable Life Insurance Trust (ILIT) funded with annual gifts
      3. Grantor Retained Annuity Trusts (GRATs) for highly appreciating assets (including shares of their business)
      4. Intentionally Defective Grantor Trusts (IDGT) holding shares of their business while still paying the taxes on any income inside the estate to “burn” down assets and lower/avoid estate taxes
      5. Charitable Remainder Trusts funded when thinking about selling a highly appreciated property
      6. Donor-Advised Fund and Qualified Charitable Distributions: Review the funding each year to maximize the tax deduction or lower taxable income in high-income years.

*Please Note: Limitations: The above case study is hypothetical and not involving an actual client. No portion of the case study should be construed by a client or prospective client as a guarantee that he/she will experience the same or a certain level of results or satisfaction if Taxable Wealth is engaged, or continues to be engaged, to provide investment advisory services.