When we met Jeff Daley (46), he had just sold his medical software firm to a huge conglomerate, for ten million dollars in cash and a similar amount in restricted (but publicly traded) stock of the Acquirer.  Jeff and his wife, Sue (44) had two teenage children.

  • As part of the sale, Jeff had agreed to stay with the company for three years. During this time, he had an earn-out provision calculating the number of restricted shares of stock of the Acquirer he would vest in and be entitled to sell.  Jeff would receive a fair, but not a large, cash compensation during this period, but would receive quite large sums if his efforts led to success.
  • After the sale of his company, Jeff was offered a participation in a “tax shelter” sponsored by one of the “Big 4” CPA firms, that would convert ordinary income from the sale proceeds into long-term capital gains, saving significant tax dollars on the sale. Jeff presented us with a stack of offering documents, including a tax opinion by the tax department of our general counsel’s former law firm.  Jeff felt it had to be a “good deal” since it had been blessed by such a prestigious firm.  We analyzed the transaction at length and advised Jeff that we could find no substantial business purpose for the transaction other than tax reduction and that, notwithstanding a very narrow legal opinion approving the technical steps of the transaction, we recommended Jeff not participate.  Jeff followed our guidance and avoided the subsequent mess when the deal blew up and ten years of litigation ensued.
  • After his earn-out period ended with a large additional payment to Jeff, he formed a consulting company to provide advice to other start-up technology companies.  We assisted Jeff with the planning required to establish an LLC for he and his partner, as well as Family LLCs that allowed them to employ family members during school breaks and assist in education funding.  This provided a significant tax saving to Jeff and Sue, as well as a rare opportunity to their children.
  • Twenty or so years ago, Jeff had been sold a “Charity-Owned Life Insurance” policy/transaction by a golfing buddy of his, who was a part time insurance agent. At the time, Charity-Owned Life Insurance was a popular tax planning tactic.  Jeff thought it sounded too good to be true that he could get a charitable deduction while the charity owned the life insurance policy on him and his children were beneficiaries of a large part of the insurance proceeds.  After the IRS banned the structure and voided the tax benefits, we spent scores of hours negotiating with the charity and the insurance company to unwind the transaction and relieve Jeff from further responsibility.
  • The same golfing buddy introduced the concept of “Stranger-Owned Life Insurance” to Jeff’s father, who did not have much life insurance in place but was in good health and had a healthy balance sheet.  This more recent tax planning scheme has been marketed to affluent seniors, who are in insurable health, have significant assets to insure with life insurance, but, for whatever reason, have not purchased life insurance up to their available amount.  This tactic has been widely discredited, but is still being marketed to wealthy seniors.  The greater the assets, the better the health, the older the senior, the less insurance in place, the better the prospect is for this approach.  Outside “Strangers,” such as hedge funds, were acquiring ownership interests in life insurance policies on wealthy seniors that they had no relationship, or “insurable interest” with.  This violated a fundamental tenet of life insurance, that you can only own insurance on a person for whom you have an “insurable interest.”  Because we were already in place at the time this opportunity arose, we cautioned against involvement and aided Jeff’s father in placing direct insurance from a licensed agent into a trust on behalf of Jeff and his siblings.
  • We managed Jeff’s investable assets during this consulting period, so that he was able to support his life style beyond that allowed from his consulting efforts.

Often, we serve our clients by what we encourage them not to do, rather than simply facilitating investments on their behalf.  Not losing money can be just as beneficial as making money.  Our relationship with our clients can be protective as well as profitable for them. We act as their “Personal CFO.”