Family Money

THE SITUATION

Due to the recent sale of the family business and gifting from his parents, Mr. and Mrs. J have received $40 million in cash. They have one child, age 6. Profits from the family business have allowed Mr. J to live an affluent lifestyle since childhood, but this is the first time that he has had significant net worth to manage.

THE ISSUES

The majority of the client’s assets are in a family limited partnership. The rest of the family’s wealth is in the family business.

Due to the mortgage company’s inability to provide financing in a timely manner, the client has had to request a delay in closing and the seller has agreed to a delay of one week. This is a time when the client will be overseas. No further delays are possible and the closing must occur in one week.

THE SOLUTION

The private banker reads the family limited partnership agreement to see if the partnership can pledge its assets to loan requests. After confirming that this is possible, the private banker then suggest that the client pledge his partnership interest in his hedge fund for his equity contribution. Taking the hedge funds as collateral meets the client’s goal of avoiding gift and capital gains tax. The result of the transaction is that the loan closes on time with no problems.

All of this occurs while the client is overseas.