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About this book

Effective financial planning for executives and entrepreneurs is complex, dense, and impossible to reduce to a single, easy-to-understand formula. Designed to emphasize the importance of successful, targeted financial planning, this book begins by telling a story about a fictional, but plausible, power couple and their family who (spoiler alert!) do pretty much everything wrong in securing their financial future. In most cases, they don’t do the things needed because they don’t know what they are. Using this story as a case study of an executive and an entrepreneur, the book breaks down the case into chapters and offers practical discussions of all the key financial planning components—investment planning, tax planning, estate planning, philanthropic planning, risk management, and equity-based compensation to name a few—with the tools needed to tailor a plan for virtually every circumstance and need. While there is no single plan that works for everybody, this book provides a guide, with technical information alongside general themes, focused on how to build an effective financial plan.

In addition to all the benefits of the first edition, this second edition provides significant new content and insights for the entrepreneur who is planning for a future liquidity event such as a sale. It also provides detail on how to manage concentrated ownership positions and on ESG investment strategies, a rapidly growing investment theme. Finally, the second edition includes tax, estate planning, regulatory, and other updates to reflect changes since the first edition was published.

Table of Contents

Frontmatter

1. The Story of David and Goliath, and Abby and Samson: A Journey with No Direction

Abstract
The story of David, Abby, and Goliath begins. David grows up as part of a modest family in the shadow of Goliath Assembly Company, for which his parents work, earning just enough money to get by. David meets Abby, his match and equal in every way. David and Abby go to separate universities and eventually graduate with impressive degrees in business and communications, respectively. They are married and pursue ambitious careers, David as an executive at Goliath and Abby at her own startup, Slingshot. The couple buys a home, has children, and lives an upscale lifestyle but does no financial planning. Then the unthinkable happens. Goliath runs into difficulties after acquiring a company called Samson. David loses his job and eventually suffers a heart attack.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

2. The Goals of Executive Financial Planning: Peace of Mind and the Five Pillars

Abstract
The principal goal of executive financial planning is to provide financial peace of mind to the executive as well as their family and other dependents. Effective financial planning must address the core needs and fundamental objectives of any corporate executive, including maximizing the rewards of working as an executive, achieving financial independence, planning for and minimizing taxes, planning for others, and managing risk. These five interrelated goals can be called the “Five Pillars of Peace of Mind.” By achieving balance among the Five Pillars, a corporate executive can support a state of financial peace of mind. Conversely, a failure to address any of the Five Pillars can cause a great collapse.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

3. Understanding and Negotiating Executive Employment Agreements for Success

Abstract
Given how things worked out, David should have spent more time understanding, discussing, and even negotiating his employment agreement with Goliath. The authors use the story of David and Goliath to highlight the importance of a strong, balanced employment agreement in maximizing the rewards of being a corporate executive. They consider the many ways to address provisions that are nearly universal in all agreements, including: the scope and nature of the employment relationship; title, duties, and responsibilities; reporting structure; exclusivity; fixed and incentive compensation; equity incentives and participation; employee benefits; term, termination, and severance; assignment and changes of control; restrictive covenants; reimbursement of expenses; restrictions on liability; ownership of intellectual and other property; and applicable law and dispute resolution.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

4. The ABCs (and ESPPs, RSUs, SARs, ISOs, and NSOs) of Equity-Based Compensation

Abstract
One of the most overlooked, but most important, areas of executive financial planning involves taking advantage of stock-based grants and ownership. Many executives, like David, don’t take the opportunity to understand these opportunities fully until a company, career, or personal event forces them to look more closely. The authors consider planning techniques for maximizing the benefits associated with: directly owned company stock; employee stock purchase plans; qualified benefit plans; deferred compensation plans; restricted stock; restricted stock units; stock appreciation rights; incentive stock options; and non-qualified stock options. While the tax rules are important, it also is important to take into account: current holdings; company and market risks; career plans; and risk tolerance. Special situations, hedging strategies, trading plans, and rules for insiders are also considered.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

5. The Story of David and Goliath, And Abby and Samson: The Aftermath

Abstract
David survives his heart attack, but his health is precarious. David needs several months before he can seek a new job, and Abby must put more energy into her company when the couple can no longer afford to hire any help. David regrets that he did not pay attention to his employee benefits, including disability insurance. The couple realizes that, without any asset allocation strategy, they have lost most of their wealth. They must also face other consequences of their planning failures, including an unpaid retirement-plan loan, tax bills, an underwater mortgage, an expensive life insurance policy, underfunded education accounts, and aging parents with no safety net. Abby considers a sale of Slingshot, but her failure to plan for it may hinder that possibility.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

6. Achieving Financial Independence: Goals-Based Planning

Abstract
Achieving financial independence starts with a dispassionate, objective census of all resources, assets, opportunities, risks, and liabilities. The key to this exercise is the personal definition of one’s own goals, such as housing security, education, and retirement. Asset accumulation is relegated to a utilitarian role, as a marker of progress. Key assumptions must be made regarding: future income sources; future expenses; liabilities; inflation of expenses; and growth of investments. An actionable financial plan should be memorialized in writing and should be accompanied by supporting documents, including a balance sheet, stock-plan schedules, and a cash-flow plan. Monte Carlo analysis can offer a stress test on a straight-line cash-flow plan, but persistent monitoring and review are necessary to ensure that progress toward financial independence is not derailed.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

7. Investment Planning in Five Steps

Abstract
David and Abby never really bothered with an investment plan, and they paid a steep price for their indifference. A well-structured investment portfolio requires a planning process of developing and setting realistic goals, identifying return objectives, diversifying risk, and monitoring investment performance. There are five key steps that should be part of the investment-planning process: draft an investment policy statement; assess the applicable risk factors; determine the appropriate asset allocation; select the right investment vehicles; and monitor and adjust the portfolio as necessary, including through a regular rebalancing discipline. Common investor mistakes to avoid include not having a plan, overconcentration in company or other securities, attempts at market timing, and performance chasing.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

8. Tax Planning and the Ten Commandments

Abstract
Through careful, advance planning, taxes can be minimized, and the burden of taxation can be satisfied. When done right, tax planning is a broad-based, continuous, and dynamic process. David, Abby, and other executives and entrepreneurs should follow the “Ten Commandments of Tax Planning” to optimize their after-tax results: optimize the deferral of income; maximize and accelerate deductions and credits; plan for tax withholding and estimated taxes; coordinate debt and taxes; understand and plan for the difference between ordinary income and capital gains; maximize the after-tax value of home ownership; consider taxes when making investment decisions; take advantage of tax-advantaged ways to pay for education; beware of all types of income-based taxes, including employment taxes; and maintain good tax hygiene.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

9. Estate Planning and Why It’s Really So Important

Abstract
People like David and Abby often overlook estate planning because they tend to believe in one of two myths: (1) estate planning is all about taxes, and therefore, it’s only for the ultra-wealthy or (2) estate planning is all about what happens to your stuff after you die, so it’s only important for older or sick people. The main objectives of estate planning are welfare planning, income continuity, orderly distribution of estate property, tax mitigation, asset protection, beneficiary security, and philanthropy. The essentials of effective estate planning include addressing the need for: powers of attorney; living wills and healthcare proxies; HIPAA authorizations; insurance; proper titling of assets and beneficiary designations; lifetime gifts; wills; and trusts. Taxes must also be considered, including the estate tax, gift tax, and generation-skipping-transfer (GST) tax. Select estate-planning strategies and a sample plan to mitigate these taxes and achieve other goals are explored.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

10. Planning for Philanthropy and What It Can Do for Everyone

Abstract
Effective charitable giving involves far more than just donating money. There are tax, legal, and personal considerations that need to be assessed. There are five key elements to charitable gifting for every donor: establishing a budget; becoming familiar with the basic income tax rules; selecting the most tax-efficient assets to give; choosing how to make the gift; and making an impact. The authors consider the tax rules surrounding philanthropy and consider techniques that include donating appreciated assets as well as using donor-advised funds, gift annuities, charitable remainder trusts, charitable lead trusts, and private foundations. The authors also consider how donors can ensure that their funds are going to organizations that will use their gifts most effectively while also creating a family legacy.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

11. Too Much of a Good Thing: Managing Concentrated Holdings

Abstract
Having a concentrated stock or other ownership position is common for corporate executives, offering many potential rewards but also substantial risks. The “right” stock can be a significant wealth creator, but concentrating in a single position can become a wealth destroyer. There are many disciplines and techniques that should be considered to address the risks of concentration, though each has its advantages and disadvantages. A gradual diversification strategy often works best, though factors such as taxes, risk tolerance, time horizon, and legal restrictions must be considered. Various tax-reduction strategies are available to manage the tax costs of any sales. There are also several hedging strategies that should be considered, along with the potential use of exchange funds or charitable vehicles.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

12. Managing Some of Life’s Great Risks Through Insurance

Abstract
In broad terms, insurance is a form of risk management. While there are myriad types of insurable risks, the authors focus on those personal risks that most commonly can disrupt or devastate individual and, by extension, family financial planning. Those risks are associated with health, life, property, and personal liability for negligent acts or omissions. The authors discuss key concepts and definitions related to insurance and then explore how best to analyze and utilize the following forms of insurance: health insurance, including through COBRA; disability insurance; life insurance, including term insurance and permanent insurance; long-term-care insurance; and property and casualty insurance, including personal excess liability and umbrella insurance.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

13. Five-Pillared Planning for Exits and Other Liquidity Events

Abstract
A successful entrepreneur can spend decades building and nurturing a business only to have much of its value unnecessarily evaporate because they didn’t plan appropriately for an eventual liquidity event. At a minimum, effective planning for a liquidity event should begin no less than 18 months in advance of the event. A well-structured, coordinated advisory team is essential for optimizing a substantial liquidity event. Cash-flow planning is an important part of planning for a liquidity event, as is understanding its potential impact on achieving financial independence. There are a wide variety of techniques available to minimize federal and state income taxes, as well as estate and gift taxes, while also planning for others such as family members, charities, and employees. The planning process should also involve a comprehensive insurance review.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

14. Finding the Right Advisors

Abstract
The authors discuss how executives and entrepreneurs can work with advisors to optimize their financial plans. They suggest key questions to ask and consider when seeking out professional assistance, such as: what financial advisory services do you offer; are you a fiduciary; how do you get compensated for the advice you recommend; what professional credentials do you hold; where and how will you custody my assets; whom will I be interacting with in addition to you; what is your investment philosophy; how are investment decisions made; what are the types of clients you work with most often; how often should I expect to hear from you; and what is your succession solution should something unforeseen happen to you?
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

15. The Alternative Story of Delilah, Redemption, and the Promised Land

Abstract
The authors offer an alternative story of David, Abby, and Goliath, in which Abby reconnects with her friend, Delilah, a financial planner at a wealth management firm called Redemption Wealth Management. Delilah works with the couple to create a detailed, written financial plan designed to provide them with financial peace of mind. The plan maximizes the ability of David and Abby to earn income and benefits from their companies; establishes a path to achieve financial independence; minimizes the risks to which the couple is subject; optimizes their current and future tax circumstances; and establishes a plan for their legacy. Goliath still suffers a setback, and David still has a heart attack, but the couple’s financial plan allows them to live with peace of mind.
Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Max B. Haspel, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes

Backmatter

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