Options to Help You Create Liquidity from Concentrated Stock

As a successful executive, you’ve likely accumulated a healthy number of company stock shares.

The key to unlocking the hidden value in your company stock could lie in repurposing some of those funds to maximize what’s truly important to you, such as education for your children, a second home your family can enjoy, retirement security, or philanthropic desires.

Your next question might be, “But how do I do that, particularly in a tax-efficient way?” One possible answer is to create liquidity.

Below are some options to consider when attempting to create liquidity from your concentrated stock.

1. Selling Shares Outright

Selling shares of stock frees up funds that can be used for just about any need. If you have a low-cost basis, you are likely concerned about a significant capital gains tax hit. One solution is to consider selling shares over time, which can help you mitigate the tax bite in any one year and still participate in the future growth of your stock.

2. 10b5-1 Plan

If you are an insider, establishing a 10b5-1 plan could define a predetermined schedule for selling shares over time. Such plans specify each sale’s dates, prices, and amounts before the transaction and comply with SEC Rule 144, which governs the sale of restricted stock.

3. Using Listed Options

Depending on your objective, several options strategies could be employed. Writing covered calls, purchasing put options, or creating a collar can generate income while you’re waiting to sell, protect against downside price movements, or potentially both.

4. Securities-based Loan / Line of Credit

Exploring a securities-based loan is another strategy to look into if you need funds, but the timing of unwinding the stock is not optimal. However, making sure you understand the risks involved is imperative. For example, adjustable interest rates, capital calls during market declines, or reduced borrowing capacity due to asset allocation changes should be carefully considered.

Conclusion

If you’ve been acquiring and holding company stock for several years, its growth has likely afforded you the opportunity of choice. Maximize its value by choosing to use it in a way that supports your financial, family, and charitable goals.

Interested in learning about other options to unravel value from concentrated stock? Read our blog “Unlock Hidden Value: How to Maximize Your Concentrated Stock,” and remember that a Sequoia Financial Group advisor is just a click away to help you achieve your goals.