Wealth Client Case Study
Austin & Katie
Marital Status: Married
State of Residence: TX
Household Income: $450,000
Clients: Austin (31) is a Regional Sales Director for a pre-IPO cybersecurity company & Katie (30) is a full-time mom for their three boys under the age of 5.
Background:
Austin was an early sales hire and joined his current company pre-Series A funding. Since then, the company has exponentially grown and surpassed a $5B valuation during the most recent funding round. Alongside the Series D funding, the company announced a stock buyback which enables employees to sell up to 10% of their vested equity. In addition to seeking guidance on whether or not to participate in the stock buyback, he also wants to be thoughtful about the exercise strategy for his remaining ISOs as the company’s valuation now far exceeds the strike price of his options.
Upon having their second child, Katie transitioned to being a full-time mom a few years ago. When she’s not chasing three boys around, she is actively involved with their local church & volunteers at the boys school. In addition, she launched a cookie-making business and is seeking expertise on tax strategies for her business.
As Austin’s income has grown due to promotions & exceeding sales targets, they are looking for a cohesive plan that encompasses how to prioritize savings for the boy’s education, upgrading their home over the next few years, and establishing a level of financial independence that enables Austin to step-away from his lucrative sales role within the next ten years. In addition, they prioritize donating 10% of their income to support their church and other community organizations and want to know ways to optimize their charitable giving strategy.
Advisor Recommendations,
Actions Taken:
- Identified his earliest shares are eligible Qualified Small Business Stock - Due to exercising ISOs that vested ahead of the Series B funding, we discovered the company met the criteria for Section 1202 QSBS, which enables Austin to realize up to $10 million of gains tax-free if he holds these shares for five years.
- Established 529 Education Savings Account - They are in a fortunate position to cover private grade school tuition via cash-flow and they also want to know how much they should be saving to cover the boy’s education beyond K-12. We discussed the benefits of investing in 529 plans while their children are young and incorporated a funding strategy using Austin’s commissions to cover a majority of their future education expenses.
- Obtained Term Life Insurance Coverage for Austin - Given that Austin is the primary income earner in their household, we discussed the financial distress the family would experience if he passed. We also discussed their ability to “self-insure” this risk upon Austin receiving liquidity for the value of his private company stock.
- Company Stock Buyback / Plan for Proceeds - Given their growing family, Austin & Katie want to upgrade into a home that the boys can grow up in for years to come. They also envision a pool & patio set-up in their backyard for their family to enjoy for years to come. Upon receiving quotes from an architect for their dream backyard, we determined that selling 10% of his vested shares that have been held for more than one year, would provide sufficient proceeds to cover their estimated tax liability and build out their dream backyard.
- Defined Strategy for their Charitable Donations - Due to the combination of a strong sales year and participating in the company stock buyback, we discussed the benefits of “clumping” multiple years of donations into one tax year via a Donor Advised Fund. This enables Austin & Katie to receive a bigger tax benefit due to their high income this year.