Journal of Wealth Management

Letter from the Editor - JWM Winter 2024

Paul Bouchey — 2026-07-24

Letter from the Editor, JWM Fall 2024

Paul Bouchey — 2026-07-24

Letter from the Editor, JWM Summer 2025

Paul Bouchey — 2026-07-24

Combining Charitable Remainder Unitrusts and Tax-Aware Strategies to Diversify Low-Basis Stock

Joseph Liberman — 2026-07-24

We show how combining charitable remainder unitrusts (CRUTs) with tax-aware strategies can help investors diversify low-basis stock and enhance after-tax wealth accumulation. While direct-indexing strategies offer some ability to offset gains distributed by the CRUT, their effectiveness is limited. In contrast, tax-aware long-short factor strategies provide two key advantages: the potential to outperform a passive index before tax and the ability to realize high net losses, which can offset a large portion of the CRUT’s capital gain distributions. As a result, pairing a CRUT with tax-aware long-short factor strategies leads to significantly better long-term after-tax wealth outcomes compared to direct indexing or a market index fund. Beyond financial benefits, a CRUT-based approach allows investors to achieve philanthropic goals. Our findings suggest that investors and their advisors should integrate philanthropy and investment management to optimize wealth preservation and charitable impact.

Letter from the Editor JWM Fall 2025

Paul Bouchey — 2026-07-24

Managing Concentrations Through a Goals-Based Framework

Claire Lampazzi — 2026-07-24

Portfolios with a concentrated stock position are subject to higher risk than more diversified portfolios. There are three main strategies for managing concentration risk: 1) monetizing the concentrated position through outright sales; 2) gifting the concentrated position to other individuals or charities; and 3) diversifying or hedging the concentrated position through various investment strategies.

Using a goals-based wealth management framework, this paper leverages Monte Carlo analysis to model the various concentration risk reduction strategies for a sample high-net-worth investor. The analysis projects future returns and the probability of the investor reaching their financial goals quantified as “probability of success.” The modeling results are compared to a base case of the investor maintaining their concentrated position.

The paper aims to demonstrate through sample investors how others can efficiently reduce a concentrated stock position based on their unique situation and goals. It also outlines the advantages and disadvantages of various strategies.

OPTIMIZING ASSET DISPOSITION FOR INHERITANCE: A QUANTITATIVE ANALYSIS OF THE CRITICAL LOSS RATE AND STEPPED-UP BASIS

Anne Zissu — 2026-07-24

Long-term investors holding highly appreciated assets face a critical financial planning dilemma: realizing gains incurs immediate capital gains tax, while deferring sale until death offers heirs a 'stepped-up' cost basis that eliminates taxes on prior appreciation. This deferral strategy, however, carries market risks, as asset values may depreciate. This paper introduces a quantitative model to evaluate this trade-off, balancing immediate capital gains tax costs against the potential future tax benefits of inheritance and associated market risks. We define and derive the critical annual loss rate (k), which signifies the maximum annual depreciation an investment can sustain over an inheritance period (n) such that the tax advantage of a stepped-up basis precisely offsets the investment's decline. Our simulations demonstrate that while substantial initial tax savings allow for greater tolerable depreciation over short periods, this tolerance decreases as the inheritance period lengthens, highlighting the diminishing marginal benefit of tax deferral against sustained market declines. This framework equips investors with a structured approach to optimize asset disposition strategies for tax-efficient wealth transfer.

Prepaid Variable Forward Contracts

Mark FICHTENBAUM — 2026-07-24

Concentrated equity hedging solutions like collars and prepaid variable forwards have gained in popularity in recent years, in part, due to rising equity markets. These solutions create downside protection, allow for some upside appreciation, and in the case of a prepaid forward, allow the investor to borrow against the hedged position at relatively low fixed rates all while potentially deferring taxes on the low-basis stock. Tax risk can be created if the investor removes too much of the risk of loss and opportunity for gain. Although the IRS never created a bright line test, tax professionals often look at case law surrounding these solutions. One series of cases involves the Estate of Andrew McKelvey vs IRS. In tax circles, these cases are well known, however, the results are often misinterpreted. This paper seeks to clarify the implications of this case and offer guidelines and formulas to avoid tax issues.

A Framework for Managing Concentrated Wealth

Paul Bouchey — 2026-07-24

This article discusses the financial management of large, concentrated positions controlled by individuals and families with a multi-generational wealth management perspective. Most concentrated positions are in private companies, not public ones. Concentrated positions of this type have many benefits that may justify retaining them for decades, even generations: the potential financial return of such an asset relative to a diversified portfolio, as well as the estate planning, tax management, and psychic benefits of owning that position.

The article offers a framework for thinking through the benefits and risks of owning or selling concentrated positions, as well as some options for achieving risk diversification without selling. Skillfully managed, the complex interactions of concentrated positions, estate planning, tax planning, cash flow planning, governance and family dynamics, can create tremendous value that is not captured with standard performance metrics.

The Concentrated Stock Conundrum

Paul Bouchey — 2026-07-24

This paper addresses the complex challenges faced by investors who hold a substantial portion of their net wealth in a single highly appreciated stock or a small number of such stocks. We analyze the trade-offs between concentrated stock risk and the tax consequences of diversification, evaluating a suite of portfolio management strategies—including staged diversification, covered call writing, and variable prepaid forwards (VPFs)—each combined a direct index or a tax-managed long-short portfolio. Using detailed simulation modeling, we compare these approaches against two benchmarks: holding the stock and selling upfront to invest in the market. Our results demonstrate that pairing VPFs with a tax-managed long-short portfolio delivers the strongest downside protection and highest median after-tax returns for investors with low-basis, concentrated positions. The framework balances risk management with tax efficiency and offers practical guidance for wealth managers seeking to optimize after-tax outcomes for their clients while mitigating the risks inherent in concentrated equity portfolios.

Managing Concentrated Public Stock Positions by Seeding an Exchange-Traded Fund

Brent Sullivan — 2026-07-24

Wealth managers increasingly seed new exchange-traded funds (ETFs) under Internal Revenue Code Section 351, allowing clients to reallocate low-basis stock into a diversified, professionally managed fund without immediate gain recognition.

The primary challenge for practitioners is distinguishing between routine transactions and those that invite IRS scrutiny. Most Section 351 seeds are straightforward applications of a century-old nonrecognition rule. Still, two fact patterns raise harder questions: "Stuffing," in which investors use borrowed money to pad a portfolio before seeding, and "Sequential Seeding," in which investors spread the transaction across multiple funds over time. For each, we identify the facts that could cause the transfer to fail Section 351 and trigger immediate tax. We conclude with a practical diligence guide summarizing the facts that most often drive scrutiny risk.

Phantom Income and Character Degradation in Option Collars and Variable Prepaid Forward Contracts

Brent Sullivan — 2026-07-24

Variable prepaid forward contracts and option collars paired with margin loans offer similar economics on concentrated equity: downside protection and day-one liquidity in exchange for capped upside. The key difference is tax treatment. A variable prepaid forward is a single contract whose gain or loss is computed on a net basis, while a collar consists of two separate options, each tested independently. We model both structures at roll (cash settlement) and at close (physical settlement) and show that the economic difference between the two solutions can be explained by phantom income (a current tax liability with no corresponding economic gain), character degradation (the conversion of a short-term capital loss into a long-term basis adjustment), and financing spread. In nearly all circumstances, we conclude that the variable prepaid forward is a structurally more efficient alternative.

Letter From the Editor, JWM Summer 2026

Paul Bouchey — 2026-07-24

Legacy at Risk: Weighing and Responding to Concentrated Equity’s Vulnerability to Drawdowns

Spencer Cavallo — 2026-07-24

We examine the vulnerability of single-name equities to significant drawdowns and the implications for long-term wealth preservation and legacy planning. We identify key drivers of equity vulnerability, including instability in financial metrics, deteriorating fundamentals, and elevated volatility and tail-risk behavior, and synthesize these characteristics into an Equity Vulnerability Score (EVS), a framework for ranking the relative susceptibility of U.S. equities to severe drawdowns. We connect this framework to the practical challenges faced by investors with concentrated positions, where late-stage drawdowns can materially impair a lifetime of wealth accumulation. While diversification remains a foundational principle of risk management, many investors retain concentrated exposures due to tax constraints, behavioral considerations, and legacy objectives. In this context, a more refined understanding of downside risk becomes critical. The EVS provides a structured approach to differentiating between more and less vulnerable securities, supporting monitoring and decision-making under uncertainty. While uncertainty cannot be eliminated, improving the diagnosis of drawdown risk may be one of the most effective ways investors can protect and preserve long-term wealth.