David K. Murdock, Jr. CFP, CLU, CIMA, Managing Partner and Sr. Wealth Advisor of Bordeaux Wealth Advisors, joined Julie Cooling, Founder and CEO of RIA Channel, at the CAIS Alternative Investment Summit to discuss tax planning for complex clients.
Bordeaux Wealth Advisors is an RIA firm based in Silicon Valley and Seattle with $4 billion AUM. Given the firm’s location in areas that have generated significant wealth for employees, executives, and investors in technology firms, Bordeaux’s clients have complex needs. Tech executives are often compensated with incentive stock options, nonqualified stock options, and restricted stock units. The unique tax aspects of these complex stock options present planning opportunities. Incentive stock options may incur alternative minimum tax, but planning may be able to avoid or eliminate that tax.
Bordeaux has nine CPAs on staff, allowing the firm to advise on the complex needs of clients, including taxes, estates, and business needs. Murdock believes that it is important to integrate investments, tax planning, and estate planning to create successful outcomes for clients. High net worth investors are advised to take estate planning actions before some provisions of the estate tax code sunset at the end of 2025.
Bordeaux believes in the endowment model of investing using alternative investments to enhance returns and reduce risk. While each portfolio is customized to the needs of each specific client, many clients have 25% to 40% allocations to private and illiquid investments. It is imperative to understand that alternative investments can be complex and be tax inefficient, including disclosure of tax information on K1 forms. High income Californians can pay half of their income in state and federal tax. While an investment in private credit with yields of 9% to 11% may seem attractive, investors need to understand after-tax returns. Investments such as opportunity zone funds can be used to defer taxation, while charitable trusts can increase philanthropy through more efficient tax planning.
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