A simple yet powerful way to increase the per share value of your legacy stock. Clients with a concentrated stock position that is intended to transfer to family and/or charity may be able to potentially increase the per share value of the transfer while de-risking the portfolio.
By using life insurance.
Say you have a married couple, male age 73 and female age 72 with 64,000 shares of stock in one company valued at $158 per share. The couple intends to transfer the stock to family at their joint death.
It may be possible to convert the $166.66/share into $333.33/share by repositioning a portion of the stock with insurance. That’s a 200% increase in value on day one.
At the same time, it is possible to diversify and de-risk the portfolio.
Very simply, this is how it works:
The per share value has increased from $166.66/share to $333.33/share with the $10M life insurance.
The couple continues to own 33,480 shares of the original stock but has diversified its estate holdings.
The life insurance has guarantees that allow its value to remain stable even in down markets. In this way, life insurance mitigates the risk to the portfolio and creates a legacy floor, a dollar amount under which the legacy cannot drop regardless of market conditions. That’s the de-risking part.
The internal rates of return up to joint life expectancy (age 91/90) is 5.07%, and 5 years later, almost 4%.
Take a look:
1 EOY refers to End of Year
2 Joint L. E. refers to Joint Life Expectancy
3 IRR refers to Internal Rate of Return
By illustrating a de-risking strategy that utilizes life insurance, clients with a concentrated stock position may be able to diversify the position and de-risk the portfolio while increasing the per share value.
So simple.
