Case Study: Tammy becomes a millionaire at 30

Background:

“Tammy,” approximately 30 years old, joined a pre-IPO tech company we’ll call A Tech Trade (Ticker: ATT).  When A Tech Trade went public Tammy not only received company stocks and warrants, but also she was allowed to buy stock at the price of the previous two-year low.

Tammy bought as much stock as was allowed.

Over the years ATT stock climbed quickly making Tammy’s stock worth more than $3MM on paper.

Introduction to KAM

Tammy was introduced to KAM by another client and relative of Tammy’s.

KAM’s role

Initially KAM advised Tammy on:

• Positioning her modest investment portfolio,
• 401(k) investments,
• How to fund the purchase of ATT stock,
• Selling program of the concentrated stock position in ATT, which included tactical and technical indicators of the best time to divest from ATT stock.

Catalyst for KAM’s Virtual Family Office (“VFO”) involvement

Tammy decided to leave A Tech Trade for personal reasons.  She was given a deadline at which to sell a substantial amount of stock and warrants (~$1.5MM worth) that would end up generating approximately $450k worth of tax liability.

Without the Tax Planning of KAM’s VFO, Tammy thought that she would just have to sell her stock, pay the tax and net out ~$1MM.  Not bad, but also, not the best outcome.

KAM’s VFO Solution

KAM’s VFO has more than 60 professionals on the platform in a wide range of financial specialties – many of which are tax mitigation strategies.

KAM engaged several of these professionals to look at various options and combinations of tax mitigation strategies that could help reduce Tammy’s taxes, so that she could keep more of what she earned long term.  With the help of our CPA partners, we modeled several strategies and combinations of strategies and arrived at a three-pronged approach to reducing Tammy’s tax liability.

1. “iCLAT” of $300k that provided Tammy with the following benefits:
   1. $285k worth of deductions in the relevant tax year.
   2. The ability to donate approximately half a million dollars to charity over the next 20 years.
   3. The projected return of tax-free capital of ~$1MM in 20 years.
2. Oil & Gas Investment of $200k:
   1. $186k worth of tax deductions in the relevant tax year.
   2. Projected return of capital of 2x over the next 8-10 years with dividends to start 6 months after the initial investment.
3. Leverage Charitable Deduction of $100k
   1. $400k deduction in relevant tax year
   2. At 40% marginal tax bracket that is a semi-immediate return on contribution of 140%.

Benefits to Tammy

After selling $1.5 million worth of ATT stock and having approximately $450k withheld for taxes, she netted a little more than $1MM in cash.  $600k of that cash was used to implement these three strategies, which left her with $400k in the short term.

The above three strategies created a deduction of $611k and at a 40% tax bracket, Tammy received a refund of ~$250k within a few months, so she has ~$650k of cash on hand.

Down the road Tammy will receive:

• $400k over the next 8-10 years,
• $1MM of tax-free returns from iCLAT in 15-20 years,
• $500k+ worth of charitable contributions,
• Paid less than $200k of taxes on $1.5MM of ordinary income (<13% marginal tax).