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Matthew is a 48-year-old Bay Area resident and has spent the past 12 years at Nvidia. He has participated in their employee stock purchase plan (ESPP) and receives restricted stock units (RSUs) as part of his compensation package. As such, a significant percentage of his overall net worth is in Nvidia stock. Nvidia stock has done phenomenally well, of late. When we met Matthew, he had about $6 million dollars invested in RSUs and another $2 million in ESPP shares. His liquid assets also included a 401(k) and some small brokerage accounts, which also largely were concentrated in technology stocks. While Matthew believes in Nvidia and plans to stay there for the foreseeable future, he realizes that having essentially all his net worth, plus his income, coming from the one company exposes him to some significant risks. Matthew is also very charitably inclined. He donates between $20-30,000 a year to a number of charities. In Matthew’s case, he had been doing that in a very tax-inefficient manner, meaning he had been writing a check to these charities out of his checking account.
Matthew came to Summitry looking for a comprehensive financial plan and appropriate strategies to create diversification to reduce the level of risk while minimizing his tax exposure. As the conversations progressed, he also sought a plan to make his charitable dollars reach further.
Matthew’s RSUs and ESPPs are highly appreciated from their cost basis, so we needed to create diversification in a very tax-sensitive manner. Matthew’s Summitry advisory team looked at all the individual lots for his vested RSUs and all his ESPP shares. We determined which of the lots would be advantageous to sell and diversify (having the least appreciation and yet, long-term capital gains treatment). Then, we looked at the most highly appreciated shares that he had, which was a combination of shares from his ESPP and some from his vested RSUs. Matthew donated those shares to a Donor Advised Fund (DAF) that we helped him establish. These steps created a tax offset, meaning Matthew got a significant tax credit in the year he donated roughly $500,000 in highly-appreciated shares into the DAF, out of which he’ll make his annual $20-30,000 donations. The DAF will be invested to generate tax-free growth, enabling donations at this level for many years into the future. Since we had created a tax offset, we were able to then sell another $2 million worth of highly appreciated shares and reinvest proceeds into a diversified portfolio. Because of the DAF gift, we were essentially able to offset about 85% of the tax bill resulting from these share sales. The result was a significantly reduced concentration in Nvidia, a meaningfully reduced tax bill (less than $50,000 in long-term capital gains), and a more efficient avenue for Matthew to give to charities he cares about. As an employee, Matthew continues to receive new RSU grants every year that vest quarterly. As part of our ongoing strategy to continue to create diversification for Matthew, we will initially maintain the $4-5 million worth of Nvidia exposure that he has outside of the diversified portfolio that we’re managing on his behalf. As his RSUs vest and he pays his earned income tax on the RSUs, the proceeds of those will immediately be swept into a Summitry Managed Account and moved into a diversified portfolio, avoiding the Nvidia concentration from building up again over time.
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*Actual client situation with the names changed for privacy. Please see disclaimer below.
This case study contains an actual client situation with the names changed in which Summitry has provided financial planning advice. There is no guarantee that similar results will be achieved for other financial planning clients. It is unknown if the clients on which this case study is based approved or disapproved of Summitry's services. Summitry's advice is based each client's specific situation and contains multiple factors. Summitry may make recommendations to one client that may differ from the advice given to another client. Summitry may suggest strategies that require legal services to implement, but Summitry does not provide legal advice.
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Advisor Group Manager