Case Study: Helping an Engineer Unlock the Power of Financial Planning
By Kyle Ferrare, CFP®, CAIA
In this ongoing series, we are profiling some Simon Quick clients to reveal some of the financial and estate planning challenges faced by wealthy families and how we have been able to help them meet these challenges.
All names and identifying details have been changed, but otherwise, the case studies reflect real-life families and situations.
Meet Ted Jackson
Ted Jackson is a 51-year-old divorced father of three children, all of whom are under the age of 18. He shares custody of them with his ex-wife. Ted lives in New York City, but also has a second home in Rhode Island. He is an intelligent and ambitious family man with midwestern humility and a ‘roll up your sleeves’ kind of attitude.
Mr. Jackson’s drive and ambition led him to build and operate an engineering firm for many years. A year prior to his engagement with us, he sold half of his ownership in the firm to an international logistics company for $30 million and his net worth is approaching $100 million.
When we met Mr. Jackson much of his net worth was tied up in his engineering firm, and the rest was held in a brokerage account. Ted’s previous investment broker didn’t offer financial planning services and so it took some time for our team to demonstrate the value of our holistic wealth management process. As our team built out a customized investment portfolio for Mr. Jackson, he gained confidence in the team and decided to take advantage of our financial planning process.
From a planning perspective, our top concern was his tax liability, which was quite large given the partial sale of his company. Our recommendation was to make a $5 million opportunity zone investment to shelter a portion of the sale proceeds from taxes.
Because of the way opportunity zone investments are structured, Ted was able to defer the tax owed on that $5mm until 2026. Plus, the taxable gain is reduced by 10% so that he will only pay the tax on 4.5MM in 2026. Additionally, any capital appreciation on his qualified opportunity zone investment is tax free so long as it is held for 10 years. After the 10-year holding period, he can sell the investment capital gains tax free.
The rules around investing in opportunity zones can be complicated, but by utilizing Simon Quick approved opportunity zone managers, Ted was able to take full advantage of this powerful strategy.
Our next step was to conduct an extensive review of Ted’s property and casualty insurance, including coverage on his Rhode Island home currently valued at $20 million.
Ted was using a mass market insurance carrier which didn’t have the level of service or coverage that someone of his net worth really required. We discovered that his umbrella coverage was less than $5 million which for someone with a $100 million net worth was very inadequate. We explained that this could put him at significant risk. For example, imagine that a frivolous lawsuit was brough against him. Should the complainant find out that he was a high-net-worth individual, they may be inclined to seek more compensation in their suit. If he were to lose the lawsuit, he could be on the hook to pay anything over that $5 million limit.
Umbrella coverage is relatively inexpensive, thus by increasing his coverage we were able to reduce his risk without greatly increasing Ted’s costs. Lastly, by introducing him to an insurance carrier that caters to a high-net-worth clientele we were able to consolidate his policies with one provider and improve the quality of his customer experience.
Trust & Estate Planning
Given Mr. Jackson’s net worth, spending habits, and future income expectations we ran projections to demonstrate that he likely has more than he will spend in his lifetime. This good fortune presents an opportunity to start moving assets out of his estate to minimize his estate tax liability.
To achieve this, we proposed ‘decanting’ or re-registering his New York trust to South Dakota which doesn’t have a state tax. Doing so would save the trust more than 10% in New York and New York City tax each year.
We also determined that Mr. Jackson was a good candidate for private placement life insurance (PPLI) and worked with him to establish a policy. Utilizing PPLI can help investors grow their assets tax free, provide asset protection, and reduce wealth transfer taxes for their beneficiaries, while still providing options for withdrawing funds from the policy.
The Next Generation
With three children approaching college age, we spoke to Ted about the benefits of establishing 529 plans for each of his kids. 529 Plans are savings accounts that provide a tax advantaged way of setting aside money for education. Once you fund the account, there is no tax on the appreciation so long as it’s used for qualified education expenses.
Ted was also unsure of how to talk to his kids about the wealth they would someday inherit. We worked with Ted to establish a plan and timeline for communicating his wealth philosophy to his children. We also made our team members available to act as financial mentors, educating Ted’s children on personal finance subjects to set them up for success later in life.
Our relationship with Mr. Jackson is ongoing and we continue to refine his financial plan and make recommendations on how to create the best financial outcomes for him and his family. Ted is a pleasure to work with and has the financial complexity that allows our team to use all the tools we have in our toolbox. We hope that in reading this case study you’ve learned more about the many ways our financial planning process helps our clients achieve the best financial outcomes possible.
If you’d like to learn more about our financial planning and investment advisory services, please call us at (973) 525-1000 or send an email to firstname.lastname@example.org.
About Kyle Ferrare
Mr. Ferrare joined Simon Quick in 2011, and works directly with high net worth clients in developing and implementing their investment and financial planning goals. Based in Denver, CO, Mr. Ferrare also works with single family offices, endowments and foundations and regularly attends investment committee and board meetings. Prior to joining Simon Quick, Mr. Ferrare spent five years in the Private Client Advisor Practice at Deloitte Tax LLP. He provided tax advisory services to a variety of private clients including high net worth individuals, investment partnerships, corporate executives and owners of closely-held businesses. Mr. Ferrare graduated from Bryant University with a BS in Finance. He completed the Financial Planning Certificate Program at Fairleigh Dickinson University in December 2009 and became a CERTIFIED FINANCIAL PLANNER™ practitioner in November 2010. In April 2014, Mr. Ferrare became a Chartered Alternative Investment Analyst (CAIA). To learn more about Kyle visit his LinkedIn.
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