The Great Billionaire Cash-Out

You’ve probably heard about Elon Musk’s controversial Twitter poll asking his followers whether they supported him selling 10% of his stock in Tesla.

He’s not the only billionaire to sell large amounts of stock this year.

With capital gains rates at near-historic lows and the stock market at an all-time high, billionaires are reconsidering their positions especially in light of proposed tax changes.

If you have clients with a large portion of wealth tied to concentrated stock positions who also have a life insurance need for wealth transfer purposes, the current economic environment creates an opportunity for planning.

Consider this Case Study:

Jeff, a 58-year-old male at a SNT risk class, owns 3M of ABC stock (60,000 shares at $50 per share with a cost basis of $20.00/share).

Jeff thinks capital gains taxes will be rise and wants to minimize his risk exposure to market volatility and leverage his legacy.

• Jeff sells 30,000 shares of ABC stock at $50 per share for 1.5M. Today he pays a 20% federal capital gains tax and a 3.8% Medicare tax on investment income for federal tax of $214,200 (state tax rates vary).

After paying taxes based on the $20 cost basis, Jeff uses some of the remaining $1,285,800 to purchase Protective’s Index Choice UL. For a 4 pay premium of $160,725, Jeff purchases a 2.2M death benefit to protect his legacy with the ability to grow policy cash value on a tax-deferred basis. He’s also created tax diversification of his portfolio.