Case Study: John & Mary

JOHN & MARY: Business owner looks to increase personal income by integrating charitable giving and family legacy interests once the family business sells.

They were referred to the Capstone Team by an attorney. John and Mary own 95% of a manufacturing company. Recently, they received an offer to purchase their company for $38 million dollars. They would tell you that family and faith drive personal values and business decisions.

Their personal goals include the maintenance of their standard of living through both of their lifetimes. They want to make gifts to foster their children’s happiness and strong marriages which also means providing for their grandchildren’s education. John and Mary want to preserve their investment capital and increase confidence in an estate transfer plan through a competent team of advisors. They want to protect their family wealth from a second spouse or litigious threats. Like most clients, John and Mary want to reduce costs and minimize taxes while achieving their goals.

The Client-Centered Consultative Process™ 

Discovery Meeting

  • The Capstone Advisor, John, Mary and their attorney, filled out necessary forms for securing appropriate information and discussed their assets which included a primary residence, cabin with acreage, and life insurance policies.
  • John and Mary showed their investments to be valued at $4.3 million
  • Advisor, John and Mary looked at the impact of the sale of their business on their estate plan.
  • Advisor helped them review their existing estate documents and past two years of tax liability.
  • John and Mary described their philanthropic interests and their dreams to benefit selected organizations.
  • John and Mary completed a risk assessment with the help of their Advisor and determined income tax cash flow needs for their retirement.

Investment Plan Meeting

  • Advisor, with assistance of accountant and attorney, confirmed transfer of existing estate assets as directed by the will and asset ownership. The Advisor identified gaps in current documents and quantified the significance of the tax impact.
  • John and Mary reviewed cash flow models identifying trends pertaining to income, estate tax, estate appreciation and portfolio risk and returns. Cash flow models reflected different terms of the business sale which included cash, debt assumption, and stock.
  • Advisor, John and Mary created a diversified portfolio which increased income security and reduced investment costs and overall portfolio risk.
  • John, Mary and Advisor met with their children to explain new family gifting plan that promotes the children’s independence and family values.
  • Advisor made recommendations to lower cost of investment access to markets and increase diversification. This would better manage portfolio volatility.
  • Advisor recommended the asset allocation and the quarterly income withdrawals be back tested against historical investment performance. Also built into these quarterly withdrawals were travel expenses, cash gifts to children, cash gifts for education to grandchildren’s accounts and charitable donations. The twelve year historical performance in back tested model included market decline of 2000, 2001, and 2002.
  • Advisor completed a review of life insurance policies including current financial strength of insurance companies. This provided a measurement of policies’ ability to maintain value compared to the point of sale illustrations.

Mutual Commitment Meeting

  • Advisor, John and Mary established a mutual understanding of commitment and decided to move forward together.
  • John and Mary signed necessary forms to establish the relationship with Capstone Wealth Management.

Implementation of Plan

  • John and Mary worked with attorney to draft new estate documents and transfer existing insurance out of the estate into trust.
  • Advisor, John and Mary created a philanthropic donor advised fund.
  • Advisor, John, Mary and their attorney created a Charitable Remainder Trust for current income.
  • This resulted in a 47% reduction of estate tax this year and increased the benefit to their heirs in the future.
  • Advisor, John and Mary reviewed alternative insurance carriers for a peer comparison to determine life insurance policy values and relative premiums.
  • Together they created a final, customized, cash flow model that reflects their personal goals.
  • This includes a back tested portfolio that achieves optimal income with acceptable risk tolerance.

Reporting of Plan

  • Advisor, John and Mary review investment plan performance at progress meeting.
  • John and Mary call Advisor with any questions or concerns.
  • John and Mary have subsequent meeting to discuss proposed sale of business and
    any modifications to investment plan the sale might indicate.
  • Based on sale of business, the Advisor, John and Mary make some changes to rebalance the plan and reduce volatility.
  • John and Mary review the plan’s performance in relationship to the cash flow benchmark.
  • Advisor, John and Mary begin custom Capstone Family Legacy Workbook.