From the Wall Street Journal.com:
The elderly couple weren't even Eileen O'Connor's clients, but she knew they needed assistance.
The husband, a longtime executive at a technology firm near Washington, D.C., had accumulated $6 million in company stock through his retirement plan and an employee stock purchase plan. He was in his mid-eighties and ready to retire. The problem: If he rolled the funds into an IRA, he would be required to take large distributions and pay the subsequent income tax on those withdrawals - which the couple actually didn't need in the first place.
O'Connor, a certified financial planner and vice president at McLean Asset Management Corp., heard about the situation from the couple's adult daughter, who was a client. O'Connor saw an opportunity to take advantage of tax benefits related to closely held stock in a retirement account. Certain employees who own such stock can gain tax benefits by rolling the shares into a taxable account instead of an IRA: The rollover earns a step-up in basis, the taxable account doesn't require minimum withdrawals, and any withdrawals are taxable at the capital-gains rate instead of the significantly higher ordinary-income rate.
To take advantage of those provisions, Internal Revenue Service rules require the employee elect this option before he or she retires. So timing was of the essence for this family - as was compliance with the complex set of IRS requirements related to such transactions.
There was another big issue as well: "Her father was used to managing everything himself, so he started making some of the arrangements on his own," says O'Connor. "Then he dropped dead in the middle of the whole thing."
That's when O'Connor stepped in. Last September, two months after the man's death, she investigated whether the transaction was still possible. Satisfied that it was, she began working nearly full-time on the project, which had to be completed by year end, in partnership with a CPA firm.
Ultimately, O'Connor's solution was to establish two trusts for the family. The first held assets for the wife, who is in her mid-eighties and in poor health. The second was funded with the rolled-over company stock in order to exclude it from the wife's taxable estate and to achieve the step-up in basis. Once the rollover was complete, O'Connor sold all the shares and distributed the proceeds to individual accounts for each of the couple's three adult children.
"It was a tremendous amount of work," O'Connor says." And it made me realize that there's a real opportunity in helping people who have complex estates to settle. There are new assets to be managed, and new planning issues for the beneficiary."
O'Connor's help certainly paid off: By taking advantage of the relatively obscure provisions in IRS code, she helped the family save $1.5 million.
